'} iliti'' hi"''', 
• 1 i itjH.l.SJiU,' 






iiiil 



W'l't'ui'l) 






m 



\\ 






u )t,'> 







^o- 



>' 






.^^^^ 



-^^-^ v^ 




i,^ '■• 










^^"^ ^<^, 



% 






.^^-v v% 






-/ n . V -^ A 







xO^^. 



,A^^ 



% 













^^. 









:.^^ 
%. 



■%< 

























ALEXANDER HAMILTON 




Alexander Hamilton 
From a painting by John Trumbull 



Alexander Hamilton 



AN Essay 



BY 



WILLIAM S. CULBERTSON, Ph. D. 



This essay won the John A. Porter Prize, 
Yale University, 1910 




NEW HAVEN: YALE UNIVERSITY PRESS 

LONDON: HENRY FROWDE 

OXFORD UNIVERSITY PRESS 

MCMXI 



p. i/' U ^v 



Copyright, 1911, 

BY 

The Kingsley Trust Association 



©C(.A300811 



TO 
MY FATHER AND MOTHER 



TERMS OF FOUNDATION OF THE JOHN 
A. PORTER UNIVERSITY PRIZE 

(As Originally Established in 1872) 

At a meeting of the President and Fellows of 
Yale College, held in New Haven, March 13, 
1872, an offer was received from the Kingsley 
Trust Association, dated at New Haven, Decem- 
ber 15, 1 87 1, placing at the disposal of the Cor- 
poration of Yale College, annually, the sum of two 
hundred and fifty dollars, to constitute a prize to 
be called the John A. Porter Prize, and to be 
awarded for an English essay, upon the following 
conditions, viz. : 

"i. The prize may be competed for by any 
member of any department of the College, pursu- 
ing a regular course for a degree, who shall have 
been a member for at least one academic year prior 
to the time when the prize shall be awarded. 

"2. The prize shall be awarded by three 
judges, two to be appointed by the President of the 
College, and one by the Trustees of the Kingsley 
Trust Association; such judges to be chosen or 
appointed on or before the first day of the second 
academic term. The award of the prize shall be 
announced on Commencement Day. 

[vii] 



TERMS OF FOUNDATION 



"3. Subjects shall be chosen, and the length 
and character of the essays may be specified by the 
Trustees of the Kingsley Trust Association. The 
subjects shall be publicly announced on or before 
the first day of the second academic term of the 
present collegiate year, and hereafter within the 
first two weeks of the first academic term. 

''4. If in any year, in the opinion of the judges, 
none of the competing essays be of sufficient excel- 
lence, the prize shall not be awarded. 

"5. Competing essays shall be transmitted to 
the judges within one week after the opening of the 
third academic term, under cover, signed by a 
fictitious name, and accompanied by the real name 
of the writer in a sealed enclosure. 

"6. The Trustees reserve the right to retain 
all competing manuscripts, and the right of publi- 
cation of the same; each essay must, therefore, be 
accompanied by an assignment of the right of copy- 
right. 

"7. These terms and conditions may at any 
time be altered by the Trustees of the Kingsley 
Trust Association, with the consent of the Presi- 
dent and Fellows of the College." 

Resolved, That the foregoing offer be accepted 
upon the above-named conditions. 

Attest, 

Franklin B. Dexter, Secretary. 

[ viii ] 



THE JOHN ADDISON PORTER PRIZE IN 
YALE UNIVERSITY 

The John Addison Porter Prize consists of the 
income of a fund of $10,000, given by the Kings- 
ley Trust Association, the corporate name of the 
Scroll and Key Society of Yale College. It was 
established in 1872, and named in honor of Pro- 
fessor John Addison Porter of the Class of 1842, 
one of the founders of the Association. The 
original endowment was in the amount of $5000, 
but, in 1909, the endowment was doubled and the 
prize is now $450. 

The prize was originally given for an English 
essay on one of a given list of subjects. With the 
increase of the endowment the conditions of the 
competition were changed and are now as follows : 

" I . The prize is offered for a work of scholar- 
ship in any field where it is possible, through origi- 
nal effort, to gather and relate facts or principles, 
or both, and to present the results in such a liter- 
ary form as to make the product of general human 
interest. 

"2. No list of subjects for essays in competi- 
tion for the prize is prescribed. 

"3. Competition for the prize is open to all 
resident students in the University who are candi- 
dates for a degree. 

[ix] 



JOHN ADDISON PORTER PRIZE 

''4. No essay will be excluded because it has 
already received some other award. 

"5. No essay will be excluded because it has 
already received credit in course. 

''6. No essay will be considered for this prize 
unless it be specially submitted for that purpose. 

"7. Essays may be submitted anonymously or 
not, at the option of the writer. 

''8. All essays competing for the prize must be 
sent addressed to the John Addison Porter Prize 
Committee, in care of the Secretary of Yale Uni- 
versity, New Haven, Conn., before April i, of 
each year. 

"9. If none of the competing essays is deemed 
of sufficient merit, the prize will not be awarded. 

"10. The Association may, at its pleasure, 
print the winning essay. In this case a surrender 
of copyright by the author will be required. 

"11. If the winning essay is not printed by the 
Association the author may make arrangements to 
publish the prize-winning essay. In this case the 
line "This essay won the John A. Porter Prize, 
Yale University" (with the year) shall appear on 
the title page of the printed essay. 

"12. The winner of the prize will be under no 
obligation to print the prize-winning essay." 

Inquiries regarding the prize can be addressed 
to the Committee on the John A. Porter Prize, 
care of the Secretary of Yale University. 

[X] 



PREFACE 

This essay was awarded the John Addison 
Porter Prize of Yale University in 1 910. I have 
made some changes in the manuscript as it was 
originally submitted. I have, in some cases, 
altered the form of statement; in others, cut out 
passages which seemed unnecessary. In chapters 
seven, eight and nine I have added certain unpub- 
lished material which, since the prize was 
awarded, I have found among Hamilton's papers 
in the Library of Congress. But these changes 
and additions have all been in accord with the 
outline and conclusions of the original manu- 
script and the essay as now published is sub- 
stantially as it won the prize. 

The material here published for the first time 
relates to manufactures. No attempt has been 
made to publish anything except a few passages 
which throw light on the problem of this essay. 
I refer to the unpublished preliminary drafts of 
the Report on Manufactures as "MS. Manufac- 
tures, I, 2, and 3." The unpublished letters which 
I have used are referred to by the volume and 
page in Hamilton's papers in the Library of Con- 
gress. I have used the Federal Edition of his 
works and it is referred to throughout the essay 
as 'Works." 

[xi] 



PREFACE 



This essay is published by the Kingsley Trust 
Association (the corporate name of "Scroll and 
Key" Society of Yale College), by whom this 
prize was founded. For assistance in writing the 
essay I am chiefly indebted to Prof. Henry C. 
Emery of Yale University. Under his influence 
I became interested in the study of Hamilton as 
a thinker, and his suggestions and criticisms have 
assisted me materially in my endeavor to interpret 
the writings of Hamilton in the light of the move- 
ments of thought in the nineteenth century. Since 
it is impossible in almost all cases to separate his 
ideas from my own, it is altogether fitting that I 
should recognize here his influence upon my think- 
ing which has been no less deep than his friend- 
ship has been kind. 

w. s. c. 

Yale University, June, 191 1. 



[xii] 



CONTENTS 



Page 

Chapter i. Introduction i 

Chapter 2. Nationalism 4 

Chapter 3. The Problem .... 17 

Chapter 4. National Defence and Neu- 
trality 2^ 

Chapter 5. Authority 49 

Chapter 6. Finance and Unity ... 64 

Chapter 7. Dangers of Homogeneous 

Expansion .... 86 

Chapter 8. Manufactures . . . . 112 

Chapter 9. Protection 127 



[ xiii ] 



CHAPTER FIRST 

Introduction 

The facts of the life of Alexander Hamilton 
are so familiar that a mere catalogue of them will 
serve to refresh the mind of the reader. He was 
born January ii, 1757, on the little island of 
Nevis, one of the Leeward group southeast from 
Porto Rico. His father was a Scotch merchant 
and his mother was of Huguenot descent. At the 
age of twelve he became a clerk in Cruger's store 
at St. Croix. Three years later, assisted by his 
relatives, he came to New York and in the fall of 
1773 entered what is now Columbia University. 
On the outbreak of the Revolution he quit the 
classroom for the field and in 1777, at the age of 
twenty, we find him military secretary to Washing- 
ton. In 1780, he found time to marry Miss Betsy 
Schuyler; in 1781, after resigning from Washing- 
ton's official family, he distinguished himself by 
capturing the first reidoubt at Yorktown. During \ 
the next year he was called to the bar. In 1786, 
he represented New York in the Philadelphia 
Convention and in 1789, Washington called him 
to be Secretary of the Treasury — an office which 
he held a little over five years. He returned then 
to the practice of the law, in order to support his 

[1] 



ALEXANDER HAMILTON 



large family; but he continued, until he was shot 
by Burr on July ii, 1804, to take an active inter- 
est in pubhc affairs. 

Hamilton was a contemporary with Frederick 
the Great, the Pitts, Fox, Burke, Adam Smith, 
Washington, Turgot, and Napoleon. He was 
born during the Seven Years War, which in 
Europe raised Prussia to a place of first rank 
among the powers and which in India and 
America established the British Empire on the 
ruins of French ambition. He died two months 
after the victor of Marengo was crowned heredi- 
tary emperor of the French. He saw the French 
Revolution begin in bloodshed and terror; he saw 
it end in despotism. Above all, he saw and helped 
achieve, first, American independence, and then 
American unity. 

Many views have been expressed about Hamil- 
ton and his work. Some writers have seen in him 
a paragon of wisdom and virtue; they are blind to 
his faults and to the merits of his opponents. 
Others have condemned him as a Tory and reac- 
tionary in politics and as a defender of the 
fallacies of mercantilism in economics. Still 
others have seen in him a champion of the capital- 
istic class with no thought or sympathy for the 
proletarian masses. These writers have made 
illuminating studies of Hamilton and his work, 
but they seem to fail to grasp the significance of 

[2] 



INTRODUCTION 



the idea of nationality which dominated every 
phase of his political and economic thinking. 
H The object of this essay is to avoid writing 
either biography or history. Valuable works 
already exist on the life of Hamilton and on the 
history of his times. This essay is addressed to 
those who are interested in knowing the relation 
of Hamilton to one of the great historic move- 
ments of thought of the nineteenth century. Its 
object is to state, first, the general principles of 
nationalism and their relation to other theories 
of society and, secondly, to show from Hamilton's 
writings how, in each problem of practical states- 
manship which confronted him, these were the 
principles which influenced and determined his 
action. The purpose of this essay is not to deter- 
mine whether the ideas of Hamilton were right 
or wrong; it is to state, sympathetically, his theory 
of society and to formulate a philosophic basis for 
his public acts and writings. 



[3] 



CHAPTER SECOND 
Nationalism 

There are according to Emery three economic 
theories of society: *'the classical theory of com- 
peting individuals; the socialistic theory of com- 
peting classes; and the protectionist theory of 
competing nations."* The classical theory is the 
individualism of Adam Smith. This astute Scotch- 
man believed that if every man, as long as he does 
not violate the laws of justice, is left perfectly free 
to pursue his own interest in his own way, and to 
bring both his industry and capital into competi- 
tion with those of every other man, the obvious 
and simple system of natural liberty will establish 
itself of its own accord.^ He regarded the inter- 
est of the individual and society as identical since, 
as he put it, the individual by the study of his own 
advantages naturally, or rather necessarily, is led 
to prefer that employment which is most advan- 
tageous to society.^ It was the height of pre- 
sumption, he thought, to endeavor to regulate the 
employment of labor and capital, for from the 
nature of the case, any such regulation was sure 

* Emery, H. C, The New Protectionism. Yale Alumni 
Weekly, vol. 13, p. 51. 

^ Smith, A., Wealth of Nations (1776) (Cannan edition), 
Book 4, ch. 9, vol. 2, p. 184. 

c Ibid., Book 4, ch. 2, vol. 1, p. 419. 

[4] 



NATIONALISM 



to divert labor and capital from the more to the 
less productive enterprises. 

As a protest against certain excesses of regula- 
tion and against economic fallacies which existed 
in the public mind in 1776, Adam Smith's doc- 
trine of individual freedom was valuable; but 
before the nineteenth century was half gone the 
weaknesses of free competition had begun to show 
themselves. 

Against this individualistic theory of society 
must be set, as shown above in the quotation from 
Emery, the two opposing theories which came as 
reactions to it. The first reaction is found in the 
socialism of Karl Marx and Ferdinand Lassalle. 
To these men the interest of society requires that 
the interest of the individual be made subservient 
to the interest of his particular class. Marx re- 
garded all history as the history of class-struggle; 
the lower or exploited class succeeding from time 
to time in overthrowing the ruling class and estab- 
lishing in the place of the old civilization a civiliza- 
tion after its own image.* Lassalle held that the 
influence of a class in a community depends upon 
the relative amount of power that it possesses and 
that, as it increases in power, the real constitution 
of the country reflects its rule.^ These men 
believed that the individual, and in their day the 

a Marx, K., Communist Manifesto (1848). 

** Lassalle, F., Ueber Verfassungswesen (1862). 

[5] 



ALEXANDER HAMILTON 



laborer In particular, who was being exploited 
under the regime of free competition, could find 
his only salvation In furthering class solidarity. 
The most powerful motive Impelling men to 
action, they held, was not selfish desires, but 
loyalty to class and to the Interests of class. 

The second great reaction against the doctrine 
of Adam Smith is nationalism. In this philoso- 
phy, which Is the modern child of the old mercan- 
tile doctrine of Cromwell, Colbert, and Frederick 
the Great, there are two fundamental conceptions : 
"first, that the welfare of the nation is not the 
same thing as the welfare of the Individuals which 
constitute it, and therefore, It is the duty of the 
statesman to adopt a positive policy which will 
secure the welfare of the nation; second, that the 
interests of different nations are not harmonious 
but antagonistic."* 

In this essay we will study Hamilton's relations 
to these three movements of thought. Although 
Marx did not formulate the socialist theory until 
almost a half century after Hamilton's death, 
modern writers have endeavored to interpret 
Hamilton In the light of It. As will appear later, 
however, there were then no classes In the social- 
istic sense in America and, If there had been, 
Hamilton would have regarded any philosophy 

* Emery, H. C, The New Protectionism, Yale Alumni 
Weekly, vol. 13, p. 51. 

[6] 



NATIONALISM 



with suspicion that put their interests above the 
interests of the nation. Hamilton's relation to 
the doctrine of individual freedom was far more 
close. Individualism was the popular creed of his 
time; in politics it appeared in the Declaration of 
Independence and the ideas of the French Revolu- 
tion; in economics it appeared in the "Wealth of 
Nations." We will endeavor to show that Hamil- 
ton, on the one hand, opposed this philosophy, and 
on the other, formulated anew the nationahstic 
interpretation of history. 

We will find it helpful, before proceeding to a 
study of Hamilton's writings, to enlarge on the 
idea of nationalism as it has been understood both 
before and since Hamilton's day. The nationalist 
denies that the interests of nations are comple- 
mentary. He holds that very often their interests 
may be antagonistic, because of differences in race; 
devotion to language, institutions and traditions; 
the rivalry of civilizations; and national competi- 
tion for trade routes and markets. To him, in the 
words of List, "a nation is the medium between 
individuals and mankind, a separate society of in- 
dividuals, who, possessing common government, 
common laws, rights, institutions, interests, com- 
mon history, and glory, common defence and 
security of their rights, riches, and lives, constitute 
one body free and independent, following only the 
dictates of Its Interests, as regards other indepen- 

[7] 



ALEXANDER HAMILTON 



dent bodies, and possessing power to regulate the 
interests of the individuals constituting that body, 
in order to create the greatest quantity of common 
welfare in the interior and the greatest quantity 
of security as regards other nations."^ The 
nationalist believes that deeper than man's selfish 
interest, deeper even than his loyalty to his class, 
is his loyalty to his nation and to the national ideas 
under which he lives. Individuals and classes, he 
says, are led, by wise statesmanship, to cooperate 
within the nation in order to make their group 
powerful against other groups ; and the welfare of 
particular interests is thereby made subservient to 
the strength and prosperity of the whole. If a 
nation because of its undeveloped economic organi- 
zation needs protection, the nationalist thinks that 
it is the duty of government by means of tariffs, 
prohibitions and even war, to equalize conditions 
and stimulate the development of economic life. 

The mercantile doctrine, the ancestor of modern 
nationalism, was, some writers have believed, a 
policy eminently fitted to the age in which it 
flourished. In the ages of Cromwell, Colbert, and 
Frederick the Great, political power was used to 
make the economic organization effective against 
other nations and these statesmen did not hesitate 
to use legislation and force to establish the su- 

"•List, F., Outlines of American Political Economy (1827), 
Letter 2. 



[8] 



NATIONALISM 



premacy of their groups. '*For it was precisely 
those governments," Schmoller goes so far as to 
say, ''which understood how to put the might of 
their fleets and admiralties, the apparatus of 
customs laws and navigation laws, with rapidity, 
boldness, and clear purpose, at the service of the 
economic interests of the nation and state, which 
obtained thereby the lead in the struggle and in 
riches and industrial prosperity."* 

The age of mercantilism was an age in which 
the interests of the leading nations were antagon- 
istic; it was an age of struggle for trade routes, 
for markets, and for colonies; it was an age in 
which that group won success whose members were 
most deeply devoted to the national cause and 
whose statesmen directed, with great power, the 
force of government against rival groups. 

It is interesting to note that a feeling, very much 
like the feeling which inspired the nations which 
rose to power under mercantilism, has been a 
powerful factor in modern politics. "Seldom in 
history," Emery wrote in 1902, "has the feeling of 
the unity of a race, on the one hand, and the 
antagonism of diverse races, on the other, been so 
consciously held, or played so important a role in 
actual politics as In recent years. "^ The revival 

a Schmoller, G., The Mercantile System, p. 72. 
^ Emery, H. C, The New Protectionism, Yale Alumni 
Weekly, vol. 13, p. 53. 

[9] 



ALEXANDER HAMILTON 



of national rivalry, which began in the seventies, at 
least seriously checked the movement for univer- 
sal peace which characterized the fifties and sixties. 
The rapid rise of transportation facilities revived 
the competition for neutral markets; the pressure 
of population and national desire for empire 
renewed the scramble for colonies; protective 
tariffs, increase of armaments, and wars again 
emphasized the fact that national psychology is 
a force to be reckoned with. Many believe that 
Germany's successful rise to wealth and power, 
since her unification, has been largely due to the 
national ambition, pride, and enthusiasm awak- 
ened by the war with France. However that may 
be, it is evident that along with the world-wide re- 
vival of nationalistic ideas, has gone the unity of 
Germany and Italy; the partition of Africa among 
land-hungry nations; the defeat of Russia in its 
attempt to interfere with Japanese ambition in 
the Orient; and the reawakening of a long sleep- 
ing race-consciousness in China, India, Persia, and 
Turkey. 

The idea that state or nation is something more 
than the sum of the individuals who compose it, 
has been denied. Cooper refers* to the nation as 
a "grammatical contrivance," and Sumner in his 
brilliant, individualistic book on social classes says 
that "as an abstraction, the State Is to me only 

* Cooper, Th., Lectures on Political Economy (1826), p. 19. 
[10] 



NATIONALISM 



All-of-us,"^ and that it owes its citizens nothing 
but peace, order, and the guarantee of rights. 
The All-of-us theory of the state is a part of the 
inheritance from Adam Smith; it is the extreme 
reaction from mercantilism. It has done valuable 
work in discouraging excessive and meddlesome 
legislation, and the schemes of sentimental re- 
formers, but it has entirely missed the significance 
of psychological forces which lead men to unite in 
nations. Both past and present conditions show 
that mankind does regard the State as more than 
All-of-us, and its functions as more than peace, 
order, and the guarantee of rights. The nation, 
with its origin in the traditions of the past and with 
its ambitions for the future, represents to most of 
its citizens a cause more fundamental than their 
selfish interests or the welfare of their particular 
class. It embodies the racial ideals of the group, 
and is, at once, the protected and the protector of 
its members. 

The nationalist accepts the teaching of Malthus 
that population in the end must be checked by the 
ability of man to get food from the soil. The 
logic of this law drove some classical writers into 
pessimism, but the nationalist, hopeful that the im- 
provement in the arts will keep pace with the 
increase in numbers, says that, if it does not, it is 
the right and duty of the stronger and more cul- 

a Sumner, W. G., What Social Classes Owe Each Other, p. 9. 
[11] 



ALEXANDER HAMILTON 



tured civilizations to supplant, by force of num- 
bers, those civilizations unable to maintain their 
prestige. In countries where the population is 
stationary, the people are usually inert, parsi- 
monious, and indifferent to progress. The compe- 
tition of numbers does not stimulate them to new 
enterprise and one generation passes on to the next 
little more than it received. In countries, on the 
contrary, where population increases rapidly there 
is always the danger that, outrunning the progress 
of the arts, it will lead to over-population, and that 
suffering then will ensue, first in the form of a 
lower standard of living, and then in the form of 
famine, disease, and death. With these two risks 
before him, the nationalist does not despair but 
chooses the latter, believing it to be a remoter 
possibility than the former and that in the 
struggle, which progress toward it stimulates, 
those social systems, national beliefs, economic 
systems, scientific theories, forms of government 
and religion, which are most adapted to the needs 
of mankind will survive and flourish. 

Conflicts of civilization have very often led to 
conflicts of arms. War in its broadest sense has 
been a tribunal to which society submits questions 
which are beyond the power of human reason to 
decide— questions of what ideas shall dominate, 
what race shall be supreme, what nation shall con- 
trol the markets and colonies of the world. As the 

[12] 



NATIONALISM 



law of nations develops, the questions submitted to 
arbitration will increase; in truth, we may expect 
that ultimately all questions of law and fact will be 
decided by an international tribunal. But many 
men have honest doubts whether nations will ever 
submit vital differences to a human tribunal. It is 
not for us here to justify war or advocate peace ; 
we can simply recognize the fact that men in the 
past have chosen to die in battle for the cause they 
believe to be right rather than to see their nation 
submit to another or their civilization give place 
to another. 

"Competition and combination," Sumner says, 
"are two forms of life association which alternate 
through the whole organic and superorganic do- 
mains. The neglect of this fact leads to many 
socialistic fallacies,"* and he might have added, 
for the same reason, to many free-trade fallacies. 
In the origins of society, people, not naturally 
sociable, are drawn together in order to assist each 
other in their struggle with other groups. Lesser 
antagonism — those between individuals, families, 
and sub-groups — are suppressed and the group 
becomes a cooperating unit. It is this desire for 
protection which at first leads men of like race and 
interests to cooperate. In time, the tribe or nation, 
as the case may be, develops common interests, 
desires, and racial ambitions; and the force of 



^ Sumner, W. G., Folkways, p. 17. 
[13] 



ALEXANDER HAMILTON 



1 



social desires, emotions, and aims unites individ- 
uals in the interest of their civilization. Racial 
culture becomes an object to work for and defend. 
Nations are gradually formed by the combination 
of smaller political units. To the nationalist, na- 
tional interests take precedence over every other 
interest within the state. He believes that men 
are devoted above all else to their ideals, laws, re- 
ligion, and institutions, the sum total of which 
make up their civilization; he believes that the 
individual is strong because of the power of the 
nation and that the nation is strong because of the 
devotion of the individual. 



**Now this is the Law of the Jungle — as old and as true 

as the sky: 
And the Wolf that shall keep it may prosper, but the 

Wolf that shall break it must die. 
As creeper that girdles the tree-trunk the Law runneth 

forward and back; 
For the strength of the Pack is the Wolf, and the strength 

of the Wolf is the Pack''* 

To one who regards the nation as the most 
important unit of society, the position and duty of 
the statesman seem very important. The states- 
man to him is not that foolish, presumptuous, and 
impertinent being which Adam Smith called "an 

a Kipling, R., The Second Jungle Book. 
[14] 



NATIONALISM 



insidious and crafty animal."* The "Divine 
Hand," which in Smith's system of natural liberty, 
was supposed to direct, in some mysterious way, 
private interest for the good of society, becomes, 
from his point of view, the will of the statesman. 
He does not trust self-interest to work out social 
harmony; he regards it as a force to be restrained 
or encouraged in the interests of the nation. 
"Men will pursue," Hamilton says, "their inter- 
ests. It is as easy to change human nature as to 
oppose the strong current of selfish passions. A 
wise legislator will gently divert the channel, and 
direct it, if possible, to the public good."^ "Our 
prevailing passions," he observes in another place, 
"are ambition and interest; and it will ever be the 
duty of a wise government to avail itself of the 
passions, in order to make them subservient to the 
public good : for these ever induce us to action."*" 
"Hamilton's idea of statesmanship," Oliver says, 
"was the faithful stewardship of the estate. His 
duty was to guard the estate, and, at the same time, 
develop its resources. He viewed mankind and 
natural riches as material to be used, with the 
greatest possible energy and with the least possible 
waste, for the attainment of national indepen- 

* Smith, Adam, Wealth of Nations, Book 4, ch. 2, vol. 1, 
p. 432. 

*> Works, vol. 2, p. 58, Convention of New York, June 25, 1788. 
c Works, vol. 1, p. 408, Federal Convention, June 22, 1787. 

[15] 



ALEXANDER HAMILTON 



dence, power, and permanency. A means to this 
end was certainly the prosperity of the people, but 

the end itself was the existence of a nation 

Human society was something nobler than a mere 
convenience, a nation greater than the sum of its 
subjects. One of the duties of the state was the 
well-being of its citizens, but the duty of every 
citizen was the well-being of the state."* 

* Oliver, F. S., Alexander Hamilton: An essay on American 
Union, pp. 450-52. 



[16] 



CHAPTER THIRD 
The Problem 

No delusions of spurious patriotism clouded the \ 
mind of Hamilton In that moment of rejoicing 
when our national independence was finally recog- 
nized by England. While our independence had 
been won, he feared that it would not be wisely 
guarded and used. Back of the enthusiasm of the 
people, he discerned innumerable foes, both for- 
eign and domestic, which threatened the very exist- 
ence of the young nation. As an officer under 
Washington he had had ample opportunity to 
observe the essential weaknesses of the American 
state and he knew that the establishment of our 
nationality was a far more difficult problem than 
the winning of it on the field of battle. "Peace 
made, my dear friend," he wrote to Laurens, 
August 15, 1782, "a new scene opens. The object 
then will be to make our independence a blessing. 
To do this we must secure our Union on solid 
foundations — a herculean task, — and to ef][ect \^ 
which, mountains of prejudice must be leveled! 
.... We have fought side by side to make America 
free; let us hand in hand struggle to make her 
happy.'"^ 

* Works, vol. 9, pp. 280, 281. Laurens was killed in a skirmish 
August 27, and probably never received this letter. 

[17] 



ALEXANDER HAMILTON 



Before the surrender of Lord Cornwallis at 
Yorktown, Hamilton had begun the fight for union 
and efficient government by publishing the early 
numbers of "The Continentalist."^ These papers 
began the movement which resulted in the Phila- 
delphia Convention. "There is something noble 
and magnificent," he remarked in his last paper, 
"in the perspective of a great Federal Republic, 
closely linked in the pursuit of a common interest, 
tranquil and prosperous at home, respectable 
abroad; but there is something proportionably 
diminutive and contemptible in the prospect of a 
number of petty states, with the appearance only 
of union, jarring, jealous, and perverse, without 
any determined direction, fluctuating and unhappy 
at home, weak and insignificant by their dissen- 
sions in the eyes of other nations."^ His advice, 
however, was not heeded. Five years passed 
before men undertook the task of creating a 
strong central government. 

The youthful enthusiasm of Hamilton made him 
impatient with those less visionful men who could 
not see that which seemed so clear to him, namely, 
the need of a strong and efficient union to conserve 
and protect the wealth and reputation of the 
American nation. Being entirely free from local 

a Works, vol. 1, pp. 243-287. Published at different times be- 
tween July 12, 1781, and July 4, 1782. 
f Works, vol. 1, pp. 286, 287. 

[18] 



THE PROBLEM 



prejudice, because of his foreign birth, he never 
could understand it, but it impressed its melan- 
choly meaning upon him. To Washington in 1783 
he wrote : "The centrifugal is much stronger than 
the centripetal force in these States, — the seeds of 
disunion much more numerous than those of 
union."* He saw on all sides the evidence of a 
nation without a national government. He saw in 
the impotence and indecision of Congress, the 
opportunity for the party of disunion and anarchy; 
he saw in local prejudice and jealousy for State 
sovereignty, the enemy of the continental or 
national view; he saw in every State boundary an 
opportunity for the entering wedge of foreign 
influence, by which we would become "a ball in the 
hands of European powers, bandied against each 
other at their pleasure";^ he saw in the spirit of 
violence and repudiation, set loose by the Revolu- 
tion, the threatening hand of social disintegration. 
Honesty was dethroned; debts were repudiated; 
taxes refused; treaties broken; commerce and 
industry disorganized. To Hamilton in 1787, as 
he recalled the events of the last six years, we 
seemed ''to have reached almost the last stage of 
national humiliation." Under the Confederation 
we had turned our independence into a curse and 
made our name a byword of scorn in the councils 



a Works, vol. 9, p. 327. 
^ Works, vol. 9, p. 327. 

[19] 



ALEXANDER HAMILTON 



of Europe. "What indication is there," he asks, 
"of national disorder, poverty, and insignificance 
that could befall a community so peculiarly blessed 
with natural advantages as we are, which does not 
form a part of the dark catalogue of our public 
misfortunes?"^ 

The problem confronting Hamilton had a very 
important economic aspect. Forces were converg- 
ing to force upon the people a complete reorgani- 
zation of their economic life. The colonial 
economy had been local and territorial. Each 
colony with its foreign trade was self-sufficient, and 
down to the Revolution the only forces which had 
drawn them together, were the dangers of Indians, 
and of the French in Canada. A parallel exists, as 
has been shown, between the economic organiza- 
tion of Colonial America and Mediaeval Europe. 
"The important unit in the economic organization 
of the United States at this period," Day says, 
"was the rural group of perhaps a few hundred in- 
habitants."^ The town and the surrounding terri- 
tory was a self-sufficient unit. As the mediaeval 
peasant had brought his goods to the town market 
to exchange them for mechandise, the colonial 
farmer brought his butter, eggs, and other farm 
produce to the country store and received those 
few articles of necessity which he could afford. 

a Works, vol. 11, p. 112, The Federalist, No. 15. 
^ Day, Clive, History of Commerce, Sec. 561. 

[20] 



THE PROBLEM 



Poor transportation facilities reduced travel and 
commerce between the different sections of the 
country to a minimum. The colonial roads were 
''thick with dust in summer, and absolute sloughs, 
with mud a foot or more deep, during the thaws of 
winter and spring."* When possible the water- 
ways were used; and they, as they had been in 
Mediaeval Europe, were relatively of great im- 
portance. But communication was at best sluggish. 
Men lived and died in the community where they 
were born. Their horizon was limited and their 
wants few. The people were poor, not because 
the country was unresourceful, but because the 
economic organization was too simple to develop 
the resources and because the enterprise of the 
people was not stimulated. Colonial life was 
simple, local, and uneventful. The people were 
unenergetic and easy-going. 

This local and territorial economy had served 
the colonists well enough in its day. The self- 
sufficiency of each colony made a close relation 
with its neighbors economically unnecessary. But 
with the agitation that culminated in the Revo- 
lution, this state of affairs began to show its limi- 
tations; and during the Revolutionary period, 
when practically all foreign commerce was de- 
stroyed, the need of economic, as well as political 
unity, began to be felt. When the foreign supply 



*Day, Clive, History of Commerce, Sec. 565. 
[21] 



ALEXANDER HAMILTON 



of goods was shut off, home manufactures, espe- 
cially in iron and woolens, sprang up. Commerce 
began to break over State boundaries; and, after 
the close of the War, its encroachment continued. 
This rise of national economy was fettered by the 
colonial organization which, with the tenacity of 
outworn institutions, tried to maintain itself by 
restrictions on intercolonial trade. The States, in 
their effort to strengthen themselves, resorted to 
tariffs, retaliations, and discriminations. New 
Jersey was likened to a cask tapped at both ends, 
the contents being drawn off by her neighbors. 
"Each State," Rabbeno says, "acted on its own 
account, and was inspired solely by its own inter- 
ests which often differed from those of other 
States. The measures taken in one State were 
paralyzed by those of another, or clashed with 
them, so that instead of forming an obstacle to 
foreign importation, they hindered the develop- 
ment of the interior commerce of the whole 
nation."* 

These contentions over commerce, Hamilton 
believed, would be fatal to the peace of the country 
unless adequate power was given to the central 
government to deal with our commercial relations. 
"The spirit of enterprise," he says, "which char- 
acterizes the commercial part of America, has left 
no occasion of displaying itself unimproved. It is 

^Rabbeno, U., Protezionismo Americano, E. 2, ch. 1, sec. 9. 
[22] 



THE PROBLEM 



not at all probable that this unbridled spirit would 
pay much respect to those regulations of trade by 
which particular States might endeavor to secure 
exclusive benefits to their own citizens. The in- 
fractions of these regulations, on the one side, the 
effort to prevent and repel them, on the other, 
would naturally lead to outrages, and these to re- 
prisals and wars."^ To the mind of Hamilton 
then, union was as necessary from the economic, 
as from the political, standpoint. The state 
economy, having no longer its utility to claim for 
its defence and, becoming, therefore, selfish and 
grasping, was anti-national and, for that reason, 
stood in the way of Hamilton's plan for establish- 
ing a cooperating, independent nation. 

The need for national control of commerce was 
even more seriously felt in our foreign relations. 
Prior to our independence colonial shipping had 
been unified and protected by the English Naviga- 
tion Laws. In fact, foreign commerce had been 
the most dominant and characteristic feature of 
colonial economy.^ Trade with the West Indies, 
at least before the Molasses Act, was very lucra- 
tive, and by it the northern colonies satisfied their 
adverse trade balance with England.'' Under 
protection of the Empire the colonies were fast 

a Works, vol. 11, p. 47, The Federalist, No. 7. 

^Callender, G., Economic History of the United States, p. 6. 

p Day, C, History of Commerce, Sec. 578. 

[23] 



ALEXANDER HAMILTON 



becoming leaders in the arts of navigation and in 
shipbuilding. But after the break with England 
the power to regulate commerce, instead of being 
given to the Congress of the Confederation, was 
reserved to the separate States. Similar evils to 
those, produced by lack of national regulation of 
internal commerce, arose. When the Confedera- 
tion made a commercial treaty, it was powerless to 
enforce it as the supreme law of the land; it could 
only recommend, and any State that chose to dis- 
regard the recommendation could do so with im- 
punity. Each State, pursuing its selfish interest, 
tried to regulate its own foreign commerce. As a 
result, the States presented to the outside world no 
united front; foreign States found that they could 
not depend on the promises of the Confederation 
and the United States became an object of scorn 
in European circles. It was Hamilton's idea that 
until the States would yield their local interests to 
the interests of the nation; until they, as a united 
nation, would take common measures of regula- 
tion and retaliation, they would not be able to ob- 
tain any concessions from foreign States. Here 
was another set of economic conditions forcing 
upon the colonist the establishment of a national 
economy. 

Hamilton held up to the American people, as a 
solemn warning, the weakness of the German 
Federation. "The fundamental principle,'* he 

[24] 



THE PROBLEM 



said, "on which it rests, that the empire is a com- 
munity of sovereigns, that the diet is a representa- 
tion of sovereigns, and that the laws are addressed 
to sovereigns, renders the empire a nerveless body, 
incapable of regulating its own members, insecure 
against external dangers, and agitated with un- 
ceasing fermentations in its own bowels. The his- 
tory of Germany is a history of wars between the 
emperor and the princes and states; of wars 
among the princes and states themselves; of the 
licentiousness of the strong, and the oppression of 
the weak; of foreign intrusions, and foreign in- 
trigues; of requisitions of men and money disre- 
garded, or partially complied with; of attempts to 
enforce them, altogether abortive, or attended 
with slaughter and desolation, involving the inno- 
cent with the guilty; of general imbecility, confu- 
sion, and misery."* It was into such condition as 
this that Hamilton believed the American States to 
be drifting. The same ills which haunted Ger- 
many were appearing in America under the gov- 
ernment of the Confederation. The German 
States, having no statesman to weld them into a 
united nation, had continued in the territorial 
economy long after the nations of Western Europe 
had become united. The problem which Germany 
should have solved in the seventeenth century 
waited for its solution at the hands of List and 

a Works, vol. 11, pp. 146, 147, The Federalist, No. 19. 
[25] 



ALEXANDER HAMILTON 



Bismarck in the nineteenth century and, in the 
meantime, she suffered all the evils of a political 
and economic organization which was worn out 
and fitted to the needs of another age. This prob- 
lem of transition from territorial to national 
economy was the same problem that the American 
States were facing in the eighties of the eighteenth 
century. The words of Schmoller, spoken of 
those nations which had their rise in the seven- 
teenth century, sound strangely apt when applied 
to the situation confronting Hamilton. "The 
question now was ....," he says, "to bring 
about, as far as possible, on the basis of common 
national and religious feelings, a union for ex- 
ternal defence and for internal justice and ad- 
ministration, for currency and credit, for trade 
interests and the whole economic life, which should 
be comparable with the achievements in its time, 
of the municipal government in relation to the 
town and its environs."^ The struggle which 
Colbert waged in France during the last half of 
the seventeenth century against municipal and 
provincial influence, and which List waged In 
Germany during the first half of the nineteenth 
century against local and narrowing authority, 
was the same struggle to which Hamilton applied 
his constructive genius during the last part of the 
eighteenth century. With the growing spirit of 

a Schmoller, G., The Mercantile System, p. 49. 
[26] 



THE PROBLEM 



nationality, with the necessity for commercial 
treaties with other nations, with the increase of 
communication and internal commerce, the old 
colonial economy, with its local and narrow preju- 
dices, with its self-pride and love of power, be- 
came an obstacle to progress.^ 

Hamilton's problem, then, as he saw it, was to 
establish a strong, efficient government which 
would conserve the fruits of independence, which 
would prevent the colonial economy from per- 
petuating itself, and under which men, in security, 
might develop the dormant resources of the 
country. The nation needed the fostering care of 
human genius. Human energy which wasted it- 
self, spreading over a wide territory, needed to be 
concentrated; the simple to be supplanted by a 
more complex life; new wants awakened; manu- 
factures for which the country furnished abun- 
dant raw material, encouraged; agriculture im- 
proved; and the nation made one interdependent, 
efficient, economic unit, strengthened by division of 
labor within and united effectively against compet- 
ing nations without. 

The problem confronting Hamilton had not 
only a political and economic, but also a philo- 
sophic aspect. The ideas of Natural Rights were 
the popular ideas of his time. They were a pro- 
duct of that great movement away from mediaeval 

a Cf. Schmoller, G., The Mercantile System, p. 49. 
[27] 



ALEXANDER HAMILTON 



authority — the movement which in religion broke 
the grip of the clergy; which in philosophy swept 
away the quibbles of the schoolmen; which in 
politics proclaimed that all men are created equal 
and that they are endowed with certain inalien- 
able rights which rulers disregard at their peril; 
and which, in economics, held up, as futile, the 
regulations and restrictions of the past, and urged 
upon men the "obvious and simple system of 
natural liberty." Both the ideas put by Jefferson 
in the preamble of the Declaration of Independ- 
ence and the principles of natural liberty in the 
writings of Adam Smith, are expressions of this 
great movement. It demands the largest possible 
amount of individual freedom, which meant in 
politics a weak, decentralized government and in 
economics freedom in industry and trade. As a 
young patriot, enthusiastic over the American op- 
position to George the Third, Hamilton used some 
of the catch phrases of this philosophy,* but when 
he became a statesman, interested in the security 
and development of the American nation, he re- 
garded them as inapplicable to the conditions of 
America and therefore opposed them. He op- 
posed them in particular because they became the 
philosophic support for the partisans of France, 
the party of disunion, and the advocates of com- 
plete freedom in economic affairs. 

a Cf. Works, vol. 1, pp. 1-177. 

[28] 



THE PROBLEM 



In view of the problem which confronted Ham- 
ilton it may be well in this connection to consider 
the effect which the founding of the new govern- 
ment had on the prosperity of America. So emi- 
nent an authority as Callender seems to think that 
government had nothing to do with hard times in 
1785-86, or with good times in 1789-90. "J^st 
as hard times," he says, "had brought failure to 
the old confederation, so prosperity, if it did not 
actually cause the success of the new government, 
greatly simplified the problem of its establishment. 
One may well wonder what would have been the 
fate of Hamilton's brilliant projects, the refund- 
ing of the debt, and the establishment of a revenue 
system, if they had been tried on the country 
during the economic gloom of 1785-86."^ In sup- 
port of his position he cites some interesting letters 
of Washington. "The people," Washington 
writes to Jefferson in 1788, "have been ripened 
by misfortune for the reception of a good govern- 
ment. They are emerging from the gulf of dissi- 
pation and debt, into which they had precipitated 
themselves at the close of the war. Economy and 
industry are evidently gaining ground."^ "Many 
blessings," he writes to Lafayette in the same 

a Callender, G. S., Economic History of the United States, 
p. 182. 

^Washington, Writings (Sparks edition), vol. 9, p. 427. To 
Jefferson, August 31, 1788. 

[29] 



ALEXANDER HAMILTON 



year, "will be attributed to our new government 
which are now taking their rise from that industry 
and frugality, into the practice of which the people 
have been forced from necessity."^ It is inter- 
esting, however, to note that three years later, 
Washington, in letters not quoted by Callender, 
was more willing to emphasize the beneficial 
effects of the new government. "The United 
States," he writes in 1791, "enjoy a scene of pros- 
perity and tranquillity under the new government, 
that could hardly have been hoped for under the 
old."^ "In a tour," he writes again in the same 
year, "which I made last spring through the 
southern states, I confirmed by observation the 
accounts which we had all along received of the 
happy effects of the general government upon our 
agriculture, commerce, and industry.""" Washing- 
ton seems to have regarded the prosperous condi- 
tion of the country during his first administration 
due, not merely to "the goodness of Providence" 
which brought good crops, but also to security 
"under an energetic government" and to the har- 
mony, industry, and confidence of the people. 

It is not unreasonable to believe that changes 
in, or the policies of, government may affect the 

a Ibid., vol. 9, p. 382. To Lafayette, June 18, 1788. 
^Ibld., vol. 10, p. 169. To Mrs Graham, July 19, 1791. 
c Washington, Writings, vol, 10, p. 189. To Luzerne, Septem- 
ber 10, 1791. 

[30] 



THE PROBLEM 



motive of a whole nation. Some men believe, as 
has been pointed out, that the Franco-German 
War and the union brought about by Bismarck 
revolutionized the spirit of the German people. 
Before 1871, the land was just as fertile, the 
resources just as rich, and the opportunities poten- 
tially as numerous as after the war. But after the 
war the people, ambitious for the dominance of 
the German race and institutions, entered the 
international struggle for military prowess, for 
colonies, and for commercial and industrial su- 
premacy. Here is a condition which seems partly 
ascribable to the revival of the spirit of enterprise 
and national ambition among the people. 

Now apply this to the American nation in 1789. 
"Ripened by misfortune" under the Confedera- 
tion, the people were coming out of the "blues." 
The establishment of the new government and the 
policies inaugurated by Hamilton were political 
events which set in motion thousands of stimuli. 
The mere idea of being a great nation, able to de- 
fend our rights against others, added to the con- 
fidence of the people. "Has not your industry," 
Hamilton asked in 1801, "found aliment and in- 
citement in the salutary operation of your govern- 
ment — in the preservation of order at home — in 
the cultivation of peace abroad — in the invigora- 
tion of confidence in pecuniary dealings — in the 

[31] 



ALEXANDER HAMILTON 



increased energies of credit and commerce — in the 
extension of enterprise, ever incident to a good 
government well administered?"* Without deny- 
ing any of the many causes which brought pros- 
perity under the new government, one of the most 
important, undoubtedly, was the "vivifying influ- 
ence of an efficient and well-constructed govern- 
ment." The American nation was just as rich 
materially before 1789 as it was after. It had 
the same unlimited resources and numerically the 
same population. The element in the equation 
which made the striking difference was psycho- 
logical. This new revival of feeling was as much 
a cause as a result of economic conditions. It was 
also as much a result as a cause of the success of 
the new government. When credit was created, 
the finances reorganized, prosperity secured, com- 
merce protected, and industry encouraged, there 
was a reawakening of the national consciousness 
that was a powerful cause of both our political 
and economic success. At this time the temper of 
the American people began to change from the 
easy-going temper which characterized the colonial 
times to the strenuous, nervous, and enterprising 
spirit which is now the proverbial feature of 
American life. "Laws," asserts Say, "are not able 
to create wealth." "Certainly they are not," List 

a V^orks, vol. 8, pp. 241, 242. 

[32] 



THE PROBLEM 



answers, "but they create productive power which 
is more important than wealth."^ 

When in the evolution of society the time comes 
for a change from the narrower and less efficient to 
the broad and more efficient organization, if no 
statesman appears to brush aside the rubbish of 
the past, the old institutions will petrify and de- 
terioration will set in. Germany in the seven- 
teenth century, when the nations of the west under 
the direction of great mercantilist statesmen were 
rising to power, hung with tenacity to her old po- 
litical and economic forms. "It was not simply 
the external loss in men and capital," Schmoller 
with confidence asserts, "which brought about this 
retrogression of Germany, during a period of 
more than one century, in comparison with the 
Powers of the West; it was not even the transfer- 
ence of the world's trading routes from the Medi- 
terranean to the ocean that was of most con- 
sequence; it was the lack of politico-economic or- 
ganization, the lack of consolidation in its 
forces."^ 

The task of Hamilton was to save the United 
States from a like fate with Germany. Here the 
same struggle which was Germany's in the seven- 
teenth century, and which Bismarck had to face in 

* List, F., Das Nationale System der Politischen Oekonomie, 
ch. 12. 

^ Schmoller, G., The Mercantile System, p. 48. 

[33] 



ALEXANDER HAMILTON 



the nineteenth century — the struggle between par- 
ticularism and nationalism — was present. Local 
prejudices were deeply imbedded in the minds of 
the people. Traditions, once useful, were an 
obstacle to progress. State loyalties in America, 
as local dynasties in Germany, clung to the altars 
of the past. Both countries were a collection of 
jealous states, opposed to any central government 
that might encroach on their sovereignty. Both 
were suffering from "the aristocracy of State pre- 
tensions." Both had a common basis for nation- 
ality — race, institutions, and commercial interests. 
But these sentimental bonds were not strong 
enough to overcome local prejudice. The jealousy 
of local units in both countries opposed the delega- 
tion of power to a general government. The 
German Diet had no more authority than had the 
Congress of the Confederation. Both bodies 
proved the truth of Washington's saying: "In- 
fluence is not government."* Local dynasties In 
Germany and State sovereignty in America stood 
in the way of national greatness. Both Hamilton 
and Bismarck solved the problem along the lines 
of national tradition. Bismarck built his Union on 
the dynastic traditions of his people; Hamilton on 
the republican traditions of his. Each realized the 
need of clothing his nation with a government 

a Washington, Writings, vol. 9, p. 204. To Henry Lee, October 
31, 1786. 

[34] 



THE PROBLEM 



which would fit. In Germany, when power was 
taken from the local dynasties, the people were 
given a central prince on whom they could con- 
centrate their attachment;^ in America when the 
States were circumscribed within bounds, their 
citizens were given a strong Republic which they 
might be loyal to. Each statesman fitted the 
government to the needs and temperaments of his 
people and both governments have endured be- 
cause their foundations are laid in racial ten- 
dencies which are psychologically sound. 

Genius, it has been said, is in league with history. 
History shows that the units of society with each 
succeeding age become larger and larger. The 
town supplants the manorial economy; the terri- 
torial the town; and the national the territorial. 
But this natural tendency is only potential, and 
requires the directing genius of a statesman to 
make it effective. The United States in 1789 was 
ready to change from the territorial to the na- 
tional stage, but without the work of the great 
men of that period, among whom the constructive 
mind of Hamilton exerted such a strong influence, 
we might have drifted listlessly— a group of 
quarreling states. 

a Cf. Bismarck, Gedanken und Erinnerungen, ch. 13. 



[35] 



CHAPTER FOURTH 

National Defence and Neutrality 

A sovereign nation outside of Europe, with its 
own interests and policies, was to the European 
statesman of the eighteenth century an unthinkable 
fact. When the American nation became the first 
exception, they, while nominally recognizing our 
independence, actually treated us as colonies. It 
was only by wise statesmanship that our political 
independence, once won, was reaffirmed. Europe 
was reluctant to give us more than the crumbs of 
justice. It was easy enough for her to acknowl- 
edge our international rights on paper; it meant, 
however, a complete change in her politics to 
acknowledge them in fact. 

Hamilton was far more interested in domestic 
than in foreign affairs. But his position in Wash- 
ington's cabinet, which was practically that of 
Prime Minister, forced him to concern himself 
with foreign relations. In 1794, war was threat- 
ened with Great Britain. At the crisis of the 
situation, he wrote to Washington that he favored 
the following course of conduct: "to take effectual 
measures of military preparation, creating, in 
earnest, force and revenue; to vest the President 
with important powers respecting navigation and 

[36] 



DEFENCE AND NEUTRALITY 

commerce for ulterior contingencies — to endeavor 
by another effort of negotiation, confided to hands 
able to manage it, and friendly to the object, to 
obtain reparation for the wrongs we suffer, and 
a demarcation of a line of conduct to govern in 
future; to avoid, till the issue of that experiment, 
all measures of a nature to occasion a conflict be- 
tween the motives which might dispose the British 
government to do us the justice to which we are 
entitled, and the sense of its own dignity. If that 
experiment fails, then, and not till then, to resort 
to reprisals and war."^ 

John Jay was appointed, two days after the 
above passage was written, to negotiate a treaty 
with Great Britain. On November 19, 1794, the 
Jay Treaty was concluded at London. Hamilton 
defended it against a storm of opposition in a 
series of papers, signed "Camillus." He de- 
fended it from every angle of international law 
and expediency; and especially because it would 
bring peace. "If we can avoid a war for ten or 
twelve years more," he says, "we shall then have 
acquired a maturity which will make it no more 

than a common calamity This is the most 

effectual way to disappoint the enemies of our wel- 
fare If there be a foreign power which sees 

with envy or ill-will our growing prosperity, that 
power must discern that our infancy is the time for 

a Works, vol. 5, p. 98. To Washington, April 14, 1794. 
• ' [37] 



ALEXANDER HAMILTON 



clipping our wings. We ought to be wise enough 
to see that this is not a time for trying our 
strength."* He furthermore favored the treaty, 
because It strengthened the party of law and order 
at home ; because, by turning over to us the west- 
ern posts. It bound the east and west more securely 
together; and because it gave us control of the 
Mississippi and of the fur trade of the north. To 
him the Jay Treaty did little less than save the 
Union. 

Our relations with France were more compli- 
cated and more hostile to our nationality than our 
relations with England. There was much senti- 
mental talk about our debt of gratitude to France. 
Hamilton, while recognizing the service she had 
rendered us during the Revolution, saw that it was 
not until after that decisive event, the capture of 
Burgoyne, that she sent assistance,'' and that It was 
not love for us but hatred of England which in- 
duced her to act. "The primary motive of France 
for the assistance she gave us," Hamilton remarks, 
"was obviously to enfeeble a hated and powerful 
rival by breaking In pieces the British Empire. A 
secondary motive was to extend her relations of 
commerce In the New World, and to acquire addi- 
tional security for her possessions there, by form- 
ing a connection with this country when detached 

a Works, vol. 5, pp. 206, 207. Camillus, No. 2. 
^ Works, vol. 6, p. 206. France, 1796. 

[38] 



DEFENCE AND NEUTRALITY 



from Great Britain."^ France did not favor the 
growth of a strong American nation; she wished 
to transfer our colonial relation from England to 
herself. "She patronized," Hamilton says, "our 
negotiation with Great Britain without the pre- 
vious acknowledgment of our independence ;— a 
conduct which .... can only be rationally explained 
into the desire of leaving us in such a state of half 
peace, half hostility with Great Britain as would 
necessarily render us dependent upon France.''^ 
France was trying to use the United States to gain 
back that which she had lost in the Seven Years 
War; but Hamilton understood the struggle be- 
tween England and France for empire, and the 
keystone of his foreign policy became protection 
from them both. It was the keen insight into the 
affairs of the world, by a man who had never been 
in Europe, which led Talleyrand to say of him, 
'7/ a divine VEuropeJ' 

In January, I797. Hamilton wrote to Wash- 
ington: "My anxiety to preserve peace with 

France is known to you Yet there are bounds 

to all things We seem to be where we were 

with Great Britain when Mr. Jay was sent there, 
and I cannot discern but that the spirit of the 
policy, then pursued with regard to England, will 
be the proper one now in respect to France— viz., 

a Works, vol. 6, p. 207. France, 1796. 
^V^orks, vol. 6, p. 209. France, 1796. 
[39] 



ALEXANDER HAMILTON 



a solemn and final appeal to the justice and interest 
of France, and if this will not do, measures of 
self-defence. Anything is better than absolute 
humiliation. France had already gone much 
further than Great Britain ever did."* John 
Adams became President in March, and appointed 
three envoys to try to adjust our difficulties with 
France. The Directory refused to recognize the 
commission without bribery. French privateers 
were committing depredations on our commerce, 
and intercepting our trade with her enemies.^ 
We were on the verge of war. Hamilton, in 1798, 
published "The Stand,'"" in which, in the most 
vigorous language, he denounced the action of 
France, and attempted to rouse public opinion in 
defence of our national honor. 

National dishonor was bad enough, but, con- 
sidering our weakness as a nation, a certain 
amount of it could be endured. Hamilton, how- 
ever, was discerning enough to grasp the real 
meaning of the aggressive policy of France. "The 
prominent original feature of her Revolution," he 
said, "is the spirit of proselytism, or the desire of 
new-modeling the political institutions of the rest 
of the world according to her standard."*^ He 

a Works, vol. 10, p. 230. To Washington, January 19, 1797. 
b Works, vol. 10, p. 238. To King, February 15, 1797. 
c Works, vol. 6, pp. 259-318. 
d Works, vol. 6, p. 274. The Stand, April 4, 1798. 

[40] 



DEFENCE AND NEUTRALITY 



saw that in her effort to carry the ideas of the 
Revolution to the rest of the world, she was 
destroying nationalities. Might not the fate of 
America be that of Italy? No wonder Hamilton, 
whose chief dream was the greatness of the Ameri- 
can state, hated a nation that tried to make its 
institutions the law of every other. "Like the 
prophet of Mecca," he writes, "the tyrants of 
France press forward with the alcoran of their 
faith in one hand and the sword in the other .... 
France, swelled to a gigantic size, and aping 
ancient Rome except in her virtues, plainly med- 
itates the control of mankind, and is actually 
giving the law to nations."" If successful France's 
ambition would destroy his most cherished hope 
— the American nation.^ 

Was Hamilton deceived in thinking that the 
ambition of France extended to America? For 
centuries she had been struggling to gain or defend 
her colonial empire. In England she had found 
her severest competitor, and the Napoleomc wars 
were, in truth, the culmination of the struggle. 
This national hope and the proselytism of the 
Revolution embodied themselves in Napoleon. 
Napoleon's conquests in Europe were merely a 
means to an end. His ambition was world- 
empire. "Napoleon," Seeley says, "did not care 

a Works, vol. 6, pp. 280, 281. The Stand, April 7, 1798. 
t>Cf. Works, vol. 6, pp. 332, 333. 
[41] 



ALEXANDER HAMILTON 



about Europe. ^Cette vieille Europe m'ennuie/ 
he said frankly. His ambition was all directed 
towards the new world. He is the Titan whose 
dream it is to restore that Greater France which 
had fallen in the struggles of the eighteenth cen- 
tury, and to overthrow that Greater Britain which 
has been established on its ruins."^ When we 
realize the real intent of France, and when we see 
the proof of world-ambition in Napoleon's expedi- 
tion against Egypt and in his acquisition of Louis- 
iana, we perceive how truly Hamilton divined 
Europe. Just before we acquired Louisiana, 
Hamilton said that the cession of that territory to 
France threatened "the early dismemberment of 
a large portion of the country; more immediately, 
the safety of all the Southern States ; and remote- 
ly, the independence of the whole Union. "^ He 
wishes also to thwart France's ambition for uni- 
versal empire by detaching South America from 
Spain, because the gold of those countries was 
flowing into the coffers of France."" 

It was Hamilton's behef that the true family 
compact hoped for by Genet was a Pandora box; 
it would inevitably make us a mere satellite of 
France ;'^ it would destroy our national existence. 

a Seeley, J. R., The Expansion of England, p. 105. 
l>V^orks, vol. 6, p. 334. Pericles, 1803. 
c Works, vol. 10, p. 339. To Otis, January 26, 1799. 
d Works, vol. 5, p. 184. Horatius, May, 1795. 

[42] 



DEFENCE AND NEUTRALITY 

The French party, by trying to force the govern- 
ment to assist France, were putting in jeopardy our 
nationality. Our treaty with France was defen- 
sive only; her war against the First Coalition was 
offensive; we therefore had no treaty obligation. 
"Why then should we," Hamilton asks, "by a close 
political connection with any power of Europe, 
expose our peace and interest, as a matter of 
course, to all the shocks with which their mad 
rivalship and wicked ambition so frequently con- 
vulse the earth ?"^ Our true policy, he held, was: 
"Peace and trade with all nations; beyond our 
present engagements, political connection with 
none."^ 

The foreign policy of the Federalists was vigor- 
ously national ; it saved the young and weak nation 
from being wrecked on the rock of foreign wars. 
Had we gone to war with England in 1794, or had 
we joined France later against the First Coalition, 
our independence, if not actually lost, would have 
been endangered. "The Federalists," Sumner 
says, "met a demand for sentimental politics in for- 
eign policy, and for a connection between this 
country and a foreign nation, in which relation this 
country would be a very inferior and dependent 
party, by doctrines of complete national Independ- 
ence and impartial neutrality Both In and out 

a Works, vol. 5, p. 185. Horatius, May, 1795. 
^ Works, vol. 5, p. 184. Horatius, May, 1795. 

[43] 



ALEXANDER HAMILTON 



of office Hamilton's mind was the one which 
guided and prevailed In that policy."* Hamilton 
wished the United States to be let alone to work 
out her own greatness, and all the work which he 
did, trying to keep Europe out of our affairs and 
Americans out of European affairs, was in the 
direct line of his deepest Interests. He wished to 
establish a great, self-sufficient nation, Indepen- 
dent of all outside Influence. This national plan 
was early In Hamilton's mind. "Let the thirteen 
States," he said in the Federalist, "bound together 
in a strict and Indissoluble Union, concur in erect- 
ing one great American system, superior to the 
control of all transatlantic force or Influence, and 
able to dictate the terms of the connection be- 
tween the old and the new world !"^ 

The policy of neutrality of Washington's ad- 
ministration was a wise effort to keep the Ameri- 
can nation at peace when the rest of the world was 
at war. War, at that time, would have subjected 
our commerce to the privateers of the enemy when 
we had no adequate navy to protect it. It would 
have destroyed our mercantile and shipping capi- 
tal. It would have disorganized the life of the 
new nation which was just recovering from the dis- 
sipation of the period of the Confederation; and 
would have set loose the latent, turbulent and de- 

a Sumner, W. G., Alexander Hamilton, p. 223. 
to Works, vol. 11, p. 88. The Federalist, No. 11. 

[44] 



DEFENCE AND NEUTRALITY 

structlve passion in the people; wrecked our 
strength and resources; and checked irretrievably 
our progress. It would have threatened our west- 
ern territory, which was so necessary, in Hamil- 
ton's mind, to the expansion of the Union. It 
would have increased the public debt and sub- 
jected a people, always opposed to taxation, to 
added burdens. There are times when war might 
be necessary and useful to a nation; but Hamilton 
was sure that our situation was not one of them. 
In 1794, seeing the country in an "unexampled 
state of prosperity," he said: "If while Europe is 
exhausting herself in a destructive war, this 
country can maintain its peace, the issue will open 
to us a wide field of advantages, which even imagi- 
nation can with difficulty compass."* 

In 1793, at the height of the Genet affair, 
Washington set forth the policy of the administra- 
tion in the Proclamation of Neutrality. Hamil- 
ton defended it against the attacks of the French 
party in his papers signed "Pacificus."^ The pur- 
pose of the proclamation, he says, is to inform all 
that we are at peace, and not associated with either 
belligerent, and that we will perform the duties of 
neutrals.*" He considered self-preservation the 

a Works, vol. 5, p. 86. Americanus, February 8, 1794. 
^ Works, vol. 4, pp. 432-489. 
'^ Works, vol. 4, p. 432. 

[45] 



ALEXANDER HAMILTON 



first duty of the nation.^ "The rule of morality 
....," he says, "is not precisely the same between 
nations as between individuals. The duty of mak- 
ing its own welfare the guide of its actions is much 
stronger upon the former than upon the latter, in 
proportion to the greater magnitude and import- 
ance of national compared with individual happi- 
ness and to the greater permanency of the effects 
of national than of individual conduct. Existing 
millions, and for the most part future generations, 
are concerned in the present measures of a govern- 
ment."^ 

The great contribution of the United States to 
International Law is the doctrine of neutrality. 
Well grounded as it is today, it was not recog- 
nized prior to the nineteenth century by the great 
nations. This principle was the corner stone of 
the foreign policy of the Federalists. Hamilton 
was not only its chief author, but its chief advo- 
cate and defender. In defining it, he said: "It is 
to make known to the Powers at war, and to the 
citizens of the country whose government does the 
act, that such country is in the condition of a na- 
tion at peace with the belligerent parties, and 
under no obligations of treaty to become an asso- 
ciate in the war with either, and that this being its 
situation, its intention is to observe a correspond- 

a Works, vol. 4, p. 457. Pacificus, July 6, 1793. 
^ V^orks, vol. 4, p. 464. Pacificus, July 10, 1793. 

[46] 



DEFENCE AND NEUTRALITY 



ing conduct by performing towards each the duties 
of neutrality; to warn all persons within the juris- 
diction of that country to abstain from acts that 
shall contravene those duties, under the penalties 
which the laws of the land, of which the jus gen- 
tium is part, will inflict."^ So devoted was Hamil- 
ton to the idea that he said that "if we must have 
a war, I hope it will be for refusing to depart from 
that principle."^ When the welfare of the Ameri- 
can nation was in question, he was a friend no 
more of Great Britain than of France. ''I would 
mete," he writes, "the same measure to both of 
them, though it should ever furnish the extraor- 
dinary spectacle of a nation at war with two na- 
tions at war with each other.'"^ To King he wrote : 
"We are laboring hard to establish in this country 
principles more and more national and free from 
all foreign ingredients so that we may be neither 
'Greeks nor Trojans' (English nor French) but 
truly Americans."*^ 

While Hamilton counseled peace at almost any 
cost short of national humiliation, he saw clearly 
the possibilities of war and the innumerable causes 
which have a "general and almost constant opera- 
tion upon the collective bodies of society."^ A 

a Works, vol. 4, p. 434. Pacificus, June 29, 1793. 
b Works, vol. 6, p. 228. The Answer, December 6, 1796. 
c Works, vol. 10, p. 294. To Pickering, June 8, 1798. 
d Works, vol. 10, p. 217. To King, December 16, 1796. 
e Works, vol. 11, p. 34. The Federalist, No. 6. 
[47] 



ALEXANDER HAMILTON 



proclamation of neutrality, he believed was worth 
little unless backed up by an army and navy.^ 
Quick to grasp a situation, he saw that in the 
remorseless struggle of nations, so well exempli- 
fied in his day, a nation, to be really sovereign, 
must be able to light for its rights; and that if it 
refused to be one of the millstones, it would be 
ground without mercy between them. 

The common charge of the socialist against the 
foreign policy of modern nations is that it allows 
the use of armaments and diplomacy to further the 
interests of capitalists in foreign parts. But no 
such charge is valid against Hamilton. His policy 
of defence and neutrality was to secure respect for 
the nation abroad and an opportunity to develop, 
under the shelter of peace, our vast national re- 
sources at home. 

a Works, vol. 11, p. 83. The Federalist, No. 11. 



[48] 



CHAPTER FIFTH 
Authority 

The American people in the last part of the 
eighteenth century were by their environment pre- 
disposed to Irresponsible democracy. Their rever- 
ence for Institutions and authority was scant. 
They thought that they had had too much govern- 
ment at the hands of the English statesmen, and 
they proposed to have as little as possible at the 
hands of their own. They regarded government 
as a necessary evil; but, since It had to be endured, 
they made It weak and powerless. Under the 
Confederation they reaped very different results 
from those anticipated. The tendency which was 
theirs "by nature," bade fair to destroy them and 
bring them to national nothingness. Weakness of 
central control gave opportunities to local factions 
and sectional Interests who sacrificed the general 
for their particular welfare. The channels of 
commerce were choked; currency disorganized; 
authority and law disregarded. Too little central 
control drove the nation to the verge of ruin. The 
excesses of democracy turned out to be license, 
lawlessness, and unwise factional legislation. 

Now, Hamilton believed that there were some 
natural tendencies In human nature which for the 
good of society should be restrained. Democracy 

[49] 



ALEXANDER HAMILTON 



might be the natural bent and inevitable goal of a 
new country, but because of this very fact, he 
thought that a strong government was necessary 
to restrain men from excess and to support the 
general interest. "I am much mistaken," he said, 
with the evils of the weak Confederation in mind, 
"if experience has not wrought a deep and solemn 
conviction in the public mind, that greater energy 
of government is essential to the welfare and pros- 
perity of the community."* To him in the "alter- 
nate sunshine and storm of liberty," some force 
not yielding to every momentary whim of opinion 
was necessary to conserve the resources of the 
nation and make the Union a blessing. For this 
reason he wished the central government to be 
energetic and strong, with powers equal to its 
responsibility. 

Before considering Hamilton's ideas on govern- 
ment we may find in the treatment of the Loyal- 
ists after the treaty of 1783, an example both of 
the entire disregard for authority and law which, 
at that time, was popular, and of Hamilton's cour- 
age in the defence of justice and order. By the 
treaty England had made liberal concessions to us, 
in return for which we stipulated "that there 
should be no future injury to her adherents among 
us."^ The Confederation, however, was power- 

a Works, vol. 11, p. 203. The Federalist, No. 26. 
^ Works, vol. 4, p. 240. Letters from Phocion, 1784. 

[50] 



AUTHORITY 



less to make this provision the law of the land, and 
the States disregarded it. In New York especially 
the Loyalists were persecuted. Attempts were 
made to disfranchise them and to confiscate their 
property. Their debtors refused their claims with 
impunity. Popular feeling ran high. The perse- 
cuted received no sympathy. Against this appar- 
ently irresistible tide of popular animosity Hamil- 
ton dared to set himself. He accepted and won a 
test case for a Tory defendant under the "Tres- 
pass Act." He also wrote two public letters^ in 
defence of the treaty rights of the Loyalists. His- 
tory records no more magnificent example of 
courage than this: Hamilton, practically alone, 
defending in the face of popular sentiment and 
impulse the rights of a despised few, and the 
authority of government. 

Hamilton defended the Loyalists for these rea- 
sons: first, he opposed making "the great prin- 
ciples of social right, justice, and honor, the vic- 
tims of personal animosity or party intrigue" ;^ 
secondly, he thought that passion, prejudice and 
arbitrary rule were bad habits for the young nation 
to cultivate, and that since first impressions and 
early habits give a lasting bias to the temper and 
character of a nation, it behooved the Americans to 
have scrupulous regard for the principles of 



a Works, vol. 4, pp. 230-294. 

^ Works, vol. 4, p. 251. Phocion, 1784. 

[51] 



ALEXANDER HAMILTON 



justice, moderation, and liberty;^ thirdly, he be- 
lieved it was bad policy to drive into Canada a 
moneyed and industrious class of people. 
"There is a bigotry," he observed, "in politics as 

well as in religions While some kingdoms," 

he continued, with such cases as the expulsion of 
the Huguenots from France in mind, "were im- 
poverishing and depopulating themselves by their 
severities to the non-conformists, their wiser 
neighbors were reaping the fruits of their folly; 
and augmenting their own numbers, industry and 
wealth, by receiving with open arms the perse- 
cuted fugitives."^ Instead of driving out a stable 
element of our population, as other nations had 
done, Hamilton wished to make it the interests of 
the Loyalists to become friends of the new govern- 
ment.^ They were a contented class, with nothing 
to gain by change, and he felt that such a class, 
especially in an age of revolution, was indispen- 
sable to the founding of a strong government. 

On June i8, 1787, Hamilton presented to the 
Philadelphia Convention his plan for a Constitu- 
tion.*^ His Constitution is an adaptation of the 
theory of the English government of the eigh- 
teenth century to American conditions. It seems 

a Works, vol. 4, p. 288. Phocion, 1784. 
^ Works, vol. 4, p. 284. Phocion, 1784. 
c Works, vol. 4, p. 246. Phocion, 1784. 
d Works, vol. 1, pp. 347-369. 

[52] 



AUTHORITY 



very natural that his nationalistic leanings should 
have led him to favor the institutions of the 
nation from which the colonists had received their 
traditions and law. He believed that the prin- 
ciples of government, evolved through centuries 
of experience by the Anglo-Saxon race, would 
work well among the same race living over the sea. 
He advocated a strong executive restrained by a 
popular will, and a popular assembly checked by a 
conservative senate. If government, he says, is in 
the hands of the few, they will tyrannize over the 
many; if it is in the hands of the many, they will 
tyrannize over the few. It ought to be in the 
hands of both, and they should be separate.* 
King, Lords, and Commons of the English 
government became in Hamilton's plan, a strong 
Executive, a conservative Senate, and a popular 
Assembly. The Executive was to be elected by a 
double set of electors, chosen by voters with prop- 
erty qualifications. He was to hold office during 
good behavior, to have an absolute veto, and to 
appoint the Governors of the States who, in turn, 
were to have an absolute veto on State legislation. 
Senators were to be elected by electors, chosen by 
voters with property qualifications. They must 
have property, and were to hold office during good 
behavior. They were to be elected, not from 
States, but from Districts. The Senate was to 



a Works, vol. 1, p. 375. 

[53] 



ALEXANDER HAMILTON 



have the sole power of ratifying treaties and de- 
claring war. The Assembly was to be elected by 
universal manhood suffrage. It was to have the 
power of originating money bills. Its members 
were to hold office for three years. It could not 
impeach the President. 'Tn my private opinion," 
he says, "I have no scruple in declaring . . . . 
that the British government is the best in the 
world: and that I doubt much whether anything 
short of it will do in America."^ In the midst of 
so many tendencies toward disunion and anarchy 
he thought that a conservative body, like the 
House of Lords, with nothing to gain by revolu- 
tion, was necessary to national security. It would 
be, he said, a permanent barrier, on the one 
hand, against a despotic executive, and on the 
other, against an impulsive assembly, and would be 
"faithful to the national interest." "The British 
Constitution," he observed, quoting Neckar, "is 
the only government in the world which unites 
public strength with individual security."^ 

It seems clear that Hamilton never expected the 
Convention to accept his plan in toto. His pur- 
pose was to make men disposed to a strong central 
government. Just before discussing the British 
Constitution in his speech on June i8, he says: 



» Works, vol. 1, pp. 388, 389. Federal Convention, June 18, 
1787. 
^ Works, vol. 1, p. 389. Federal Convention. 

[54] 



AUTHORITY 



"Here I shall give my sentiments of the best form 
of government — not as a thing attainable by us, 
but as a model which we ought to approach as 
near as possible."^ 

From the moment the Constitution was adopted 
he became its defender and champion. In the 
struggle for its ratification in New York we see 
him pitted against a large hostile majority, fight- 
ing with reason and oratory until by sheer force 
of conviction he triumphed. We see him day after 
day writing, with the assistance of Madison and 
Jay, the papers of the Federalist — papers which, 
although written in hours of fatigue and times of 
stress, have become political oracles not only to 
our judges and statesmen, but to political thinkers 
beyond the seas.^ Washington seldom erred in 
judgment and his opinion of the Federalist may 
serve to sum up an all too brief appreciation of 
this great work. "As the perusal of the political 
papers under the signature of Publius," he writes 
to Hamilton, August 28, 1788, "has afforded me 
great satisfaction, I shall certainly consider them 
as claiming a most distinguished place in my 
library. I have read every performance which has 
been printed on one side and the other of the great 
question lately agitated, so far as I have been able 
to obtain them; and without an unmeaning com- 

* Works, vol. 1, p. 374. 

^ Hamilton, A. M., Alexander Hamilton, p. 454. 

[55] 



ALEXANDER HAMILTON 



pliment I will say that I have seen no other so 
well calculated, in my judgment, to produce convic- 
tion on an unbiased mind, as the production of 
your triumvirate. When the transient circum- 
stances and fugitive performances, which attended 
this crisis, shall have disappeared, that work will 
merit the notice of posterity, because in it are 
candidly and ably discussed the principles of free- 
dom and the topics of government, which will be 
always interesting to mankind, so long as they shall 
be connected in civil society."* 

The ratification of the Philadelphia document 
by the people was by no means a guarantee of the 
success of the Union. The nation was united on 
paper, but not in fact. The whole machinery of 
government had to be put in motion. It was the 
task of the first administration to put life and 
meaning into the paper Constitution and to apply 
the constitutional principles which lay, as latent 
possibilities, back of the document. "If we have 
an idea ....," Sumner says, *'that people who 
read the document would obtain any conception of 
the modern state which goes under the name of 
the United States, we shall make a great mis- 
take."^ Realizing that first impressions and early 
habits count, Hamilton, supported by moral influ- 
ence of Washington, set out to mold our institu- 



a Washington, Writings, vol. 9, pp. 419, 420. 
^ Sumner, W. G., Alexander Hamilton, p. 141 

[56] 



AUTHORITY 



tlons, while they were plastic, along nationalistic 
lines. The Constitution on its face was ambigu- 
ous. Had the friends of weak government and 
State Rights been first in office, the powers since 
exercised by the Federal Government would have 
been abridged. But the ideal of Hamilton was a 
strong Union ; and the powers in the central gov- 
ernment which had been denied him in the Con- 
vention, he proposed to get from the document by 
implication. 

His doctrine of implied powers, then, had for 
its object the building of a powerful national 
government.* This principle of interpretation, 
developed and perpetuated far into the Jeffer- 
sonian era by the great Marshall, is: "That every 
power vested in a government is in its nature 
sovereign and includes, by force of the term, a 
right to employ all the means requisite and fairly 
applicable to the attainment of the ends of such 
power, and which are not precluded by restric- 
tions and exceptions specified in the constitution, 
or not immoral, or not contrary to the essential 
ends of political society."^ 

Hamilton regarded a strong central govern- 
ment as the surest protection against monarchy. 
The tendency towards disunion, encouraged by 

* Lodge, H. C, Alexander Hamilton, p. 106. 
^V^orks, vol. 3, p. 446. On the Constitutionality of the Bank, 
February 23, 1791. 

[57] 



ALEXANDER HAMILTON 



the French revolutionary ideas, was a greater 
danger than the establishment of a royal house. 
And if the excesses and abuses of liberty were not 
checked, by strong authority, the people might be 
forced to seek shelter from their own violence in 
arbitrary rule. "If we incline too much to democ- 
racy," he said, "we shall soon shoot into a mon- 
archy."^ "Transition from demagogues to 
despots," he writes in another place, "is neither 
difficult nor uncommon."^ 

Because of the prevalence of anarchy and dis- 
union in America in his day, Hamilton had doubts 
whether the republican form of government was 
"consistent with that stability and order in gov- 
ernment which are essential to public strength and 
private security and happiness,"'' but he believed 
in the theory and hoped for its success. "I am," 
he writes, "affectionately attached to the republi- 
can theory. I desire above all things to see the 
equality of political rights, exclusive of all heredi- 
tary distinction, firmly established by a practical 
demonstration of its being consistent with the 
order and happiness of society.""^ "The fabric of 
American Empire," he says in another place, 
"ought to rest on the solid basis of the consent of 

a Works, vol. 1, p. 411. Federal Convention, 1787. 

b Works, vol. 2, p. 141. Letter of H. G., February 24, 1789. 

c Works, vol. 9, p. 534. To Carrington, May 26, 1792. 

d Works, vol. 9, p. 533. To Carrington, May 26, 1792. 

[58] 



AUTHORITY 



the people. The streams of national power ought 
to flow immediately from that pure, original 
fountain of all legitimate authority."^ Since, how- 
ever, in a republican government the legislative 
power predominates, he wished it to be so divided 
that it would give expression to the desires of both 
the contented and progressive classes in the com- 
munity.'' By playing the forces of stability and 
unrest against each other, he expected to steer the 
union safely between the two dangerous rocks of 
government: despotism on the one hand, and 
anarchy on the other. 

The first serious attack on the authority of the 
Union was the Whiskey Rebellion in Western 
Pennsylvania in 1794. Hamilton had a great deal 
to say on the rebellion.'' He realized that if a 
section of the country had a right to nullify a 
federal tax on whiskey or any other law, the new 
Constitution was as much a sham as the Articles 
of Confederation. The militia was called out and 
the rebellion melted away. The vindication of the 
authority of the central government quieted for 
the moment the faction of anarchy and disunion, 
but the principle of nulHfication appeared again in 
a few years later in the Kentucky Resolutions, 
drafted by Jefferson. In them it was declared that 

aV^orks, vol. 11, p. 180. The Federalist, No. 22. 
b Works, vol. 12, p. 45. The Federalist, No. 51. 
c Works, vol. 6, pp. 339-460. 

[59] 



ALEXANDER HAMILTON 



the state had a right to judge for itself to what 
extent Federal laws should be supreme within its 
borders. Virginia followed Kentucky in issuing 
similar resolutions. The tendency of the doctrines 
advanced by Virginia and Kentucky, Hamilton 
believed to be "to destroy the Constitution of the 
United States."* These resolutions, like the 
Whiskey Rebellion, were symptoms of the opposi- 
tion to central power and national interests. 
Government had been so long a makeshift for 
popular whims that institutions and authority had 
lost all their sacredness. 

The French Revolution began in the same year 
that our new government was put in operation. 
French ideas, expressing a hatred for all existing 
forms of society, spread to America, and formed 
an alliance with the tendency toward disunion. 
"Since the peace," Hamilton said in 1796, "every 
careful observer has been convinced that the policy 
of the French Government has been adverse to 
our acquiring internally the consistency of which 
we were capable — in other words, a well-consti- 
tuted and efficient government."^ Intrigue of 
French agents and ministers had undermined the 
faith of the people in their government. Hamil- 
ton hated French influence and the revolutionary 

a Works, vol. 10, p. 340. To Sedgwick, February 2, 1799. 
^ Works, vol. 6, p. 209. France, 1796. 
[60] 



AUTHORITY 



ideas of Natural Rights because they were anti- 
national. 

It was the excesses of revolution which Hamil- 
ton opposed. "A struggle for liberty," he says, 
"is in itself respectable and glorious; when con- 
ducted with magnanimity, justice, and humanity, 
it ought to command the admiration of every 
friend to human nature; but if sullied by crimes 
and extravagances, it loses its respectability."* 
While being deeply concerned with the security of 
property, he did not regard it as sacred. "When- 
ever a right of property," he declared, "is in- 
fringed for the general good if the nature of the 
case admits of compensation, it ought to be made ; 
but if compensation be impracticable, that imprac- 
ticability ought not to be an obstacle to a clearly 
essential reform."^ To Hamilton, as to Burke, 
however, revolution was generally anathema. 
These contemporaries were both unsparing in their 
denunciation of the French upheaval of '89. They 
could not understand how conditions might become 
so bad that a root and branch revolution was the 
only way out. "A disposition to preserve, and an 
ability to improve, taken together," Burke writes, 
"would be my standard of a statesman."*' They 
confounded democracy and the rule of the people 

aW^orks, vol. 4, p. 386. To Washington, April, 1793. 

^ Works, vol. 3, p. 16. Funding System, 1791 (?). 

^^ Burke, E., Reflections on the Revolution in France, part 1. 



[61] 



ALEXANDER HAMILTON 



with the violence and anarchy of the French Revo- 
lution. In the words of Burke they believed that 
"an absolute democracy no more than absolute 
monarchy is to be reckoned among the legitimate 
forms of government."^ They had faith neither 
in the theory, "The people can do no wrong," nor 
the theory, "The king can do no wrong." To them 
neither kings nor people were infallible. Hamil- 
ton never fawned before the multitude nor tried to 
ride their prejudices to success. His idea of states- 
manship was leadership. "When occasions present 
themselves," he says, "in which the interests of the 
people are at variance with their inclinations, it is 
the duty of the persons whom they have appointed 
to be the guardian of those interests, to withstand 
the temporary delusion in order to give them time 
and opportunity for more cool and sedate reflec- 
tion. Instances might be cited in which a conduct 
of this kind has saved the people from very fatal 
consequences of their own mistakes, and has pro- 
cured lasting monuments of their gratitude to the 
men who had courage and magnanimity enough to 
serve them at the peril of their displeasure."^ 

Hamilton's respect for authority is in accord 
with his nationalistic creed. Government he re- 
garded as something apart from the nation; its 
clothing, as it were. "I hold with Montesquieu," 

^ Burke, E., Reflections on the Revolution in France, part 1. 
I'W^orks, vol. 12, p. 207. The Federalist, No. 71. 

[63] 



AUTHORITY 



he writes, "that a government must be fitted to a 
nation as much as a coat to the individual; and, 
consequently, that what may be good at Philadel- 
phia may be bad at Paris, and ridiculous at Peters- 
burgh."* To him government was the means, 
never the end, — the means by which the will of the 
nation was made effective. If the national inter- 
ests demanded measures of defence or diplomacy; 
the revival of credit or the founding of a bank; the 
encouragement of one class or the restraint of 
another, he believed that the government should 
be strong enough to enforce these measures. 

In an age when traditions were scoffed at and 
institutions were crumbling, Hamilton opposed 
the tide of irresponsible democracy and laid secure 
the foundations of our political faith; he gathered 
up the achievements of the past and embodied 
them in a strong political structure which became 
the secure soil in which American democracy cast 
its roots. 

a Works, vol. 10, p. 337. To Lafayette, January 6, 1799. 



[63] 



CHAPTER SIXTH 
Finance and Unity 

The financial measures of Alexander Hamil- 
ton had three great purposes: first, to establish 
national credit both at home and in Europe; 
secondly, to provide financial machinery adequate 
to the business needs of the nation; thirdly, to 
cement more closely the union of the States. His 
aims were not merely financial; they were national. 
The financial problems did not appeal to him as 
so many difficult problems in themselves to find 
answers for; but as opportunities by which he 
might achieve his most cherished dream — the 
building of a great American nation. 

Hamilton became Secretary of the Treasury 
under Washington on the eleventh day of Sep- 
tember, 1789. The finances of the country were 
a total wreck; and, what was far more serious, the 
spirit of repudiation and dishonesty, which had 
characterized our former history, was abroad 
among the people. After the paper money de- 
bauches of the colonial and Revolutionary 
periods; after the sequestration and confiscation 
of foreign debts; after the stop and legal 
tender laws and wholesale repudiation; after the 
attacks on the courts of law for the enforcement 
of lawful contracts; after the dishonesty, specula- 

[64] 



t* 




k 



/)a.yrSZ^:<.^e^y''>-cr9^ .:3^<ia - i^-r;^^,^ ^:Z'/^ ^tJ^^a^ r 






^'/X&. 'viy%-o<i-e~ -'^-gjz..^^ Qje-^p^-a.^^^ v^Sc^ cL^u.^;»^^\ 

I '7'.;>-c<^i_ '2.j2^^cy2.e^:h^..ai'^>^^^ .si^.;<^5 <yey~K- '^('\.a~^ a^/s^-^t^ 



Part of Washington's Letter to Hamilton when He Retired 
FROM the Office of Secretary of the Treasury 



FINANCE AND UNITY 



tlon, and depreciation of our early history, the 
wonder is that Hamilton ever overcame public 
prejudice against honest and business-like methods 
in finance. The fathers had eaten sour grapes and 
the children's teeth were set on edge. 

The ofEce of Secretary of the Treasury was, 
from the nature of the financial problems con- 
fronting the government, the most difficult in 
Washington's cabinet. Hamilton entered it with 
practically no experience as a financier. He had 
been a clerk for a merchant in St. Croix, Wash- 
ington's private secretary, a writer of pamphlets, 
and a champion of the new Constitution; but he 
had never faced the complicated problems of 
finance. It is true, that in 1780 and 178 1 he had 
written remarkable letters to Robert Morris con- 
cerning a national bank. In these letters he had 
shown, not only a wide knowledge of finance, but 
also a grasp of the nation's needs. It is by intro- 
ducing order into our finances — by restoring 
public credit, — he said, not by gaining battles, that 
we are finally to gain our independence.* He 
urges the establishment of a National Bank and 
proper provisions for the debt of the country. 
But while these letters to Morris show that Ham- 
ilton, even when he was in the army, was thinking 
on matters of financial organization, they hardly 
lead us to expect the brilliant measures which he 

a Works, vol. 3, p. 343. To R. Morris, April 30, 1781. 
[65] 



ALEXANDER HAMILTON 



launched ten years laf^. His work seems to be 
that of a constructive genius to whom the book of 
financial mysteries was open, and, as he ran, he 
read. 

We must beware of exaggerating, however, 
Hamilton's originality in public finance. His 
dreaming was not of the sort that works out 
untried schemes in the closet and then experi- 
ments with them on the people. When suddenly 
called upon to create a financial organization for 
the new government, he looked over the world to 
see whether some system was not already working 
which would lend some suggestions for solving the 
American problems. "It is a strong proof of the 
sobriety of Hamilton's judgment," Dunbar says, 
"that in determining his course under these cir- 
cumstances, he sought for the most part to adapt 
to his purpose methods and agencies which had 
been tested by experience; for that is the great 
characteristic of his Reports on Public Credit and 
on a National Bank."* Naturally, England 
offered Hamilton the most fertile field for pre- 
cedents. He believed, no doubt, that financial 
measures that were successfully put in operation 
by one branch of the Anglo-Saxon race would work 
successfully when applied to another. In funding 
the debt he followed the principles of the English 

* Dunbar, C. F., Some Precedents followed by Hamilton. 
Qu. Jo. of Econ. (1888-1889), vol. 3, p. 35. 

[66] 



FINANCE AND UNITY 



system. He thought that the proper funding of 
the debt In England had stimulated the growth of 
industry, and he desired the same results for 
the American nation.^ At the close of his pro- 
posals for funding in his first Report on Public 
Credit he remarks: "The chief outlines of the 
plan are not original; but it is no ill recommenda- 
tion of it, that it has been tried with success."^ In 
his plan for a bank Hamilton followed the main 
ideas of the charter of the Bank of England. His 
bank, like its English counterpart, was a syndicate 
of holders of public debt who were incorporated 
and granted a monopoly of issuing notes.° In the 
"Wealth of Nations" he also found practical sug- 
gestions for his plans for a bank.^ If these ex- 
amples of precedents followed by Hamilton lessen 
his claim to originality in finance, they show, all 
the more, his greatness as a constructive states- 
man. 

Hamilton had no choice as to which of the 
financial problems he should grapple with first. 
Before there could be any public credit, adequate 
provision had to be made for funding the unde- 
fined mass of government securities. During the 
struggle for independence both the central and 

* Works, vol. 4, pp. 123, 124. Report on Manufactures, 1791. 
b Works, vol. 2, p. 276. Public Credit, 1790. 
° Sumner, W. G., Alexander Hamilton, p. 164. Works, vol. 3, 
p. 439. 

<i Works, vol. 2, pp. 449, 450. Objections and Answers, 1792. 

[67] 



ALEXANDER HAMILTON 



state governments had contracted debts. These 
debts were the price of liberty/ When possible, 
money had been borrowed in foreign markets. 
Foreign debts in 1790 amountedto $10,070,307, 
on which the arrears of interest were $1,640,- 
071.62.^ The unbusiness-like way in which we 
had managed this debt had made us ridiculous in 
the eyes of European financiers. There was also a 
domestic debt of $27,383,917.74, with an arrears 
of interest amounting to $13,030,168.20.'' This 
debt was a disorganized mass of securities, issued 
at different times in the name of the Continental 
Congress, to pay for supplies and services. It 
had depreciated in value and many of the original 
holders had sold their contract rights to specu- 
lators for sums much less than the face of the 
securities. In addition to the foreign and domes- 
tic debts there were the State debts. These were 
of uncertain amount. Hamilton estimated that 
the principal and interest would amount to about 
twenty-five millions of dollars."^ The whole debt, 
then, amounted to a little over seventy-five mil- 
lions of dollars.® To the people of that time this 
seemed like an enormous debt. When Hamilton 

a Works, vol. 2, p. 231. Public Credit, 1790. 
b Works, vol. 2, p. 254. Public Credit, 1790. 
c Works, vol. 2, p. 254. Public Credit, 1790. 
d Works, vol. 2, p. 255. 

®In 1795 Hamilton reported the whole funded debt to be 
$76,096,468.67. Works, vol. 3, p. 231. 

[68] 



FINANCE AND UNITY 



came to office, the creditors were clamoring for 
payment and the treasury of the government was 
empty. He proposed to fund the whole debt — to 
exchange all securities by whomsoever held, for 
new government bonds. 

During the recess of the First Congress, Ham- 
ilton applied himself "to the consideration of a 
proper plan for the support of public credit," and 
on the 14th of January, 1790, communicated 
to the House his First Report on Public Credit.^ 
"It is agreed, on all hands," he says, "that that 
part of the debt which has been contracted abroad, 
and is denominated the foreign debt, ought to be 
provided for according to the precise terms of the 
contracts relating to it."^ But there was not, he 
noted, the same unanimity of opinion in regard to 
the provision for the domestic debt. The most 
popular scheme for providing for it was to dis- 
criminate in funding between the original holders 
of public securities and present possessors by pur- 
chase, i.e., to fund the securities held by original 
creditors at face value but those held by purchase 
at what the possessors paid for them. This sugar- 
coated plan of repudiation was, at first sight, very 
plausible. Hamilton, however, having considered 
it, rejected it. He argued that when the govern- 
ment had borrowed the money, it had entered 



a Works, vol. 2, pp. 227-289. 
b Works, vol. 2, p. 236. 

[69] 



ALEXANDER HAMILTON 



into a contract with the creditors to pay them or 
their assignees the face value of the securities with 
interest and that by making the securities assign- 
able, the government had enabled the holder to 
sell them, if he chose, in the market; and if, be- 
cause of his lack of faith and confidence in the 
government, he had sold them, he had nothing to 
blame but his distrust and lack of foresight. The 
government had the same contract with the buyer 
that it had with the original holder. To disregard 
it was a manifest injustice and prejudicial to the 
public credit. "The buyer paid," Hamilton said, 
"what the commodity was worth in the market, 
and took the risks of reimbursement upon himself. 
He, of course, gave a fair equivalent, and ought to 
reap the benefit of his hazard — a hazard which 
was far from inconsiderable, and which, perhaps, 
turned on little less than a revolution in govern- 
ment."^ 

Hamilton's unprecedented advocacy of the 
assumption of the State debts shows clearly the 
national purpose which underlay all his measures. 
In this, he went out of his way to get a policy, the 
chief result of which would be, not to create credit, 
but to cement the Union together. He saw in the 
assumption of the State debts an opportunity to 
strengthen the nation at the expense of local 
prejudice. 

a W^orks, vol. 2, p. 238. Public Credit, 1790. 
[70] 



FINANCE AND UNITY 



Some of Hamilton's reasons for assumption of 
the State debts are stated in the First Report on 
Public Credit. It would, he said, contribute to 
the stability of national finance, prevent compe- 
tition among the States for resources, and insure 
to the revenue laws a more ready and satisfactory 
execution.* In a later unfinished paper he made 
an able and elaborate defence of the funding sys- 
tem.^ He defended the assumption of the State 
debts for the following reasons : because superior 
justice was done in relieving the overburdened 
states and in equalizing the contributions of all the 
citizens; because it avoided "collisions, heart- 
burnings, and bickerings" among the different 
systems of the state finance; because it secured the 
Union a full and complete command of the 
resources of the nation; because it consolidated 
and secured public credit ; because It made a more 
adequate provision for the entire debt of the 
country; because it rescued the national character 
from stain abroad, since foreigners would not dis- 
tinguish between infractions of credit by the State 
and by the general government; because it pre- 
vented instability in funds by placing them on the 
same foundation; because it facilitated a speedy 
and honorable extinguishment of the debt; be- 
cause it prevented the depopulation of the over- 



a Works, vol. 3, pp. 244-248. 

^ Works, vol. 8, p. 429 to vol. 9, p. 34 (1795?] 

[71] 



ALEXANDER HAMILTON 



burdened states and the too rapid transfer of 
population to the unsettled parts of the country; 
and finally because it strengthened the central 
government.* Even for the sake of popularity 
alone Hamilton thought a failure to assume the 
State debts would have reacted fatally on the 
government. "A weak and embarrassed govern- 
ment," he observes, "never fails to be unpopular. 
It attaches to itself the disrespect incident to weak- 
ness, and, unable to promote the public happiness, 
its impotencies are its crimes. Without the as- 
sumption, the government would have been for a 
long time at least under all the entanglements and 
imbecilities of a complicated, clashing, and dis- 
ordered system of finance."^ 

We have seen that throughout Hamilton's 
measures for funding the foreign, domestic, and 
State debts there runs the constant purpose not 
merely of establishing the credit of the new gov- 
ernment, but also of cementing the union of States 
and invigorating the business of the nation. This 
purpose appears also in the report on a National 
Bank, submitted to Congress the 14th day of 
December, 1790.° 

Hamilton understood the manner in which 
banks hypothecate or pledge for security the 

a Works, vol. 9, pp. 14-28. Funding System, 1795 (?). 
^ Works, vol. 9, p. 31. Funding System, 1795 (?). 
c Works, vol. 3, pp. 388-443. 

[72] 



FINANCE AND UNITY 



wealth of the community; and make available for 
business, through notes and deposit rights, this 
wealth. He said they augmented "the active and 
productive capital of a country." "Gold and 
silver," he continues, "when they are employed 
merely as the Instruments of exchange and aliena- 
tion, have not been improperly denominated dead 
stock; but, when deposited in banks, to become the 
basis of a paper circulation, which takes their 
character and place, as the signs or representa- 
tives of value, they then acquire life, or, in other 
words, an active and productive quality."^ He 
saw clearly the value of an asset currency in con- 
trast with the dangers of a government Issue of 
paper money.^ The business of the country, he 
argued, which had been discouraged because the 
circulating medium was deficient, would be stimu- 
lated by banks, which would not only make vast 
amounts of hoarded money available but also 
transform the "passive" wealth of the nation Into 
active credit. By banks he would keep the money 
of the country Incessantly active so that men of 
business ability would be able to borrow on credit, 
and by this juncture of ability and capital, the 
resources of the country would be more quickly 
developed, land would become more valuable, 
agriculture more prosperous, commerce more 

a Works, vol. 3, p. 390. National Bank, 1790. 
^ Works, vol. 3, p. 414. 

[73] 



ALEXANDER HAMILTON 



active, and men more enterprising. "By con- 
tributing to enlarge," Hamilton says, "the mass of 
industrious and commercial enterprise, banks be- 
come nurseries of national wealth."^ 

By means of a central bank Hamilton hoped to 
develop the national aspect of business. The 
notes of the bank, when established, would be 
good all over the country. Drafts would liquidate 
commercial claims between men of different sec- 
tions and prevent the delay, expense, and risk 
incident to remittance of coin.^ Not the least use 
of banks would be to teach the people business 
methods. It would teach punctuality, and en- 
courage frugality and honesty. It would increase 
confidence, and the people, supported by a reliable 
institution, would be more willing to venture. The 
enterprise of men would be stimulated and the 
wealth of the nation made socially effective. 

The First National Bank was also intended to 
be useful in the public service. Hamilton's con- 
ception of the relation of the bank to the govern- 
ment was the same relation which the Bank of 
England held to the British government. It was 
to be a private institution run for the public good. 
"Public utility," Hamilton says, "is more truly the 
object of public banks than private profit. And 
it is the business of government to constitute 



a Works, vol. 3, p. 393. National Bank, 1790. 
^ Works, vol. 3, p. 395. National Bank, 1790. 

[74] 



FINANCE AND UNITY 



them on such principles that, while the latter will 
result in a sufficient degree to afford competent 
motives to engage in them, the former be not 
made subservient to it."^ There was an intimate 
connection of interest, he thought, between 
government and the bank of the nation. In 
sudden emergencies it would assist the govern- 
ment in getting pecuniary aid and the mass of its 
capital and credit could readily be converted to 
the national use. 

Hamilton's recommendations concerning money, 
which he embodied in his Report on the Mint,*' 
had two purposes. In the first place, he sought to 
establish a sound monetary system which would 
form an adequate support for the country's credit 
system, for, if the money were debased and de- 
preciating, the very floor on which the busi- 
ness of the nation stood would be uncertain. In 
the second place, uniform coinage was as neces- 
sary for the unity of the nation as a national credit 
organization. In order that the national aspect 
of business might develop, it was imperative that 
the money unit should be the same in every state. 

In Hamilton's day we were sorely in need of 
foreign capital. We needed it to improve com- 
merce, agriculture, and manufactures; to construct 
canals and roads and to work up our "im- 

a Works, vol. 3, p. 419. National Bank, 1790. 
b Works, vol. 4, pp. 3-63. January 28, 1791. 

[75] 



ALEXANDER HAMILTON 



provable matter in a crude state." We could 
well afford to pay foreigners interest for capital 
which, when applied to the productive resources 
of the nation, would yield large profits. "If the 
United States," Hamilton remarks in his second 
Report on Public Credit,* "observe, with delicate 
caution, the maxims of credit, as well toward 
foreigners as their own citizens, in connection with 
the general principles of an upright, stable, and 
systematic administration, the strong attractions 
which they present to foreign capital will be likely 
to insure them the command of as much as they 
may want, in addition to their own, for every 
species of internal amelioration."^ He sought 
also to improve our credit abroad in order to 
strengthen the nation in time of war. "There can 
be no time, no state of things," he says, "in which 
credit is not essential to a nation, especially as 
long as nations in general continue to use it as a 
resource in war."*' 

As important as foreign credit was, Hamilton 
regarded domestic credit as of more importance. 
"The opinion," he wrote to Wolcott, "which some 
entertain is altogether a false one — that it Is more 
important to maintain our credit abroad than at 
home. The latter is far the most important 

a Works, vol. 3, pp. 199-301. January 16, 1795. 
l> Works, vol. 3, p. 298. Public Credit, 1795. 
c Works, vol. 3, p. 295. Public Credit, 1795. 

[76] 



FINANCE AND UNITY 



nursery of resources, and, consequently, far the 
most important to be inviolably maintained."* 
Credit is the invigorating principle of the nation; 
it brings into action its capacities for improve- 
ment and accelerates growth.^ Its protection 
Hamilton regarded as of interest, not to any one 
class or section, but to the whole people. "The 
cause of credit and property," he says, "is one and 
the same throughout the States. A blow to it, in 
whatever State or in whatever form, is a blow 

to it in every State and in every form There 

cannot be a violation of public principle in any 
State without spreading more or less an evil con- 
tagion in all."° 

It was Hamilton's idea that his financial meas- 
ures acted directly on the prosperity of the nation 
by reviving credit, facilitating the exchanges, im- 
proving the machinery of business, and en- 
couraging industrious and ambitious undertakers. 
While an obvious object of his measures was 
strengthening the borrowing power of the govern- 
ment, his broad purpose was the improving of 
commerce, agriculture, and manufactures; the ex- 
tension of trade and navigation; the encourage- 
ment of the building of towns and of means of 
transportation. He believed that his measures 

a Works, vol. 10, p. 93. To Wolcott, April 10, 1795. 

* Works, vol. 3, p. 294. Public Credit, 1795. 

c Works, vol. 9, pp. 16, 17. Funding System, 1795 (?). 

[77] 



ALEXANDER HAMILTON 



had resulted in a ^^niversal vivificatlon of the 
energies of industry."^ 

Hamilton thought that the revival of pros- 
perity which came with the founding of the new 
government, was partly due to the fact that fund- 
ing increased the "active capital" of the country. 
Writers have read into this statement the modern 
definition of capital, and concluded that Hamilton 
was confused in regard to money, capital, and 
debt.^ Hamilton was very enthusiastic over the 
idea that a well-funded debt increased, as he said, 
the active capital, and his zeal led him in several 
cases to make statements suspiciously near 
fallacies.'' But he meant by "active capital" cir- 
culating medium, and in general, he saw the limi- 
tations as well as the value of funded debt. 

"The true definition of public debt," Hamilton 
observes, "is a property subsisting in the faith of 
the government. Its essence is promise."^ Prop- 
erty rights, which were in abeyance, because a 
faithless government had not kept its promises, 
were, by proper funding, revived. Confidence in 
the stability and solvency of the new government 
gave the securities value. No real wealth was 
created, but individuals received promises-to-pay 

a Works, vol. 8, p. 458. Funding System, 1795 (?). 
^Sumner, W. G., Alexander Hamilton, p. 150. 
c Cf. Works, vol. 2, p. 452; vol. 4, p. 118 et seq.; vol. 8, p. 460. 
d Works, vol. 3, p. 284. Public Credit, 1795. 

[78] 



FINANCE AND UNITY 



from the government which had exchangeable 
value. These exchangeable securities, which are 
claims on the wealth of the community in the same 
sense that a bank note is a claim on the assets of 
a bank, served, Hamilton thought, in a community 
where specie was scarce, as a circulating medium. 
To be certain that the funded debt operates as 
"active capital," he says it is only necessary to con- 
sider that it is "property which can almost at any 

moment be turned into money " "Who 

doubts," he asks, "that a man who has in his desk 
$10,000 in good bank notes, has that sum of 
active capital ? . . . . Who can doubt any more that 

the possessor of $10,000 of funded stock 

is equally possessor of so much active capital?"* 
By "active capital," then, Hamilton meant not 
material goods only, but anything, be it bank 
credit or notes, gold or silver, or funded debt, 
which would serve as an "engine of business." 
The readily convertible character of good public 
securities he thought gave them in exchange the 
value of bank paper, redeemable on demand. He 
probably overestimated the utility of exchange- 
able securities as circulating medium. There was, 
however, no fallacy in his assumption. The gov- 
ernment, let us suppose, receives $100 in gold 
coin, for which it issues a bond bearing the market 
rate of Interest. The coin, on the one hand, Is put 

a Works, vol. 8, pp. 459, 460. Funding System, 1795 (?). 
[79] 



ALEXANDER HAMILTON 



back into circulation trough the payment of gov- 
ernment expense; the bond, on the other hand, 
may pass from hand to hand in business transac- 
tions, doing the same work in the community as 
might be done by a $ioo bank note. There is no 
more absolute wealth in the community after this 
process than before, but the wealth is in a more 
usable form. The exchangeable property has been 
doubled. "In the question under discussion," 
Hamilton observes, "it is important to distinguish 
between an absolute increase of capital, or an 
accession of real wealth, and an artificial increase 
of capital, as an engine of business, or as an 
instrument of industry and commerce. In the first 
sense, a funded debt has no pretensions to being 
deemed as Increase of capital; in the last, it has 
pretensions which are not easy to be controverted. 
Of a similar nature Is bank credit; and, in an 
inferior degree, every species of private credit."^ 
Another motive back of all Hamilton's financial 
measures was "to cement more closely the union 
of the States."^ He aimed to break down the 
local and territorial loyalties, and to center the 
interests of the people in the nation. We see this 
^motive in his uniform monetary system, in his 
[central bank, and especially in his plan for the 
\assumption of the State debts. It was his purpose 

^ Works, vol. 4, p. 124. Manufactures, 1791. 
b Works, vol. 2, p. 232. Public Credit, 1790. 

[80] 



FINANCE AND UNITY 



by assumption to remove one great possible cause 
of quarrels between the States. The States with 
the largest debts would chafe under their burden; 
and if any one failed to make provision for the 
payment of its debt, its poor credit would react on 
the whole nation. The national government, by 
taking over all the debts, consolidated the national 
finances. Assumption also bound the interests of 
the richer and more influential citizens of the 
States, who held the securities, to the central 
government. It tended, Hamilton said, "to 
strengthen our infant government by increasing 
the number of ligaments between the government 
and the interests of individuals."^ 

In this use of the moneyed men in particular, 
and in Hamilton's financial measures generally, 
Rabbeno thinks that he has evidence in favor of 
the socialistic interpretation of history. The 
Federal party was, he says, composed chiefly of 
business men who desired a strong government in 
view of their commercial interests. To these were 
added the creditors of the government and some 
local landowners.^ These made up the rising capi- 
talistic class. The opposite party, on the contrary, 
Rabbeno says, consisted of the "mass of the 
people, agricultural, democratic, and individual- 

aV^orks, vol. 9, p. 28. Funding System, 1795 (?). 

b Rabbeno, U., Protezionismo Americano, Essay 3, ch. 1, sec. 3. 

[81] 



ALEXANDER HAMILTON 



istic in tendency."^ flamllton was, he concludes, 
the representative of the former class, and laid 
the foundation of his schemes on it and at the 
expense of the farmers and non-commercial class. 
Hamilton, therefore, is to Rabbeno the "prophet 
of American capitalism"; a man who took his 
ideals of statesmanship from his class; a leader, 
whose intentions were good, but who was actually 
using the nation to strengthen his class. While it 
is true that Hamilton used the contented and 
moneyed classes of the nation to strengthen the 
new government in a time when revolution and 
local prejudice threatened it, it is not true that 
Hamilton found his impelling motives in the ideals 
of any particular class. He was not concerned 
with a class, but with a nation. If he thought it 
necessary to use a class — be it commercial or non- 
commercial — in order to accomplish a national 
purpose, he would do it; but his goal was not the 
supremacy of a class at the expense of the nation; 
it was the supremacy of the nation at the expense 
of classes or individuals within the nation. 

The principle which divided the parties in 
Hamilton's day was not socialistic but national- 
istic. There was no struggle between classes in the 
socialistic meaning of the word; there was a 
struggle between two political ideals. The funda- 
mental antagonism between Hamilton and Jeffer- 

^ Rabbeno, U., Protezionismo Americano, Essay 3, ch. 1, sec. 3. 
[82] 



FINANCE AND UNITY 



son was not the antagonism of capital and labor, 
but of nation and State. Rabbeno speaks of the 
"social law which makes economic phenomena 
the substratum and the foundation of political 
events."^ But Hamilton's measures are political 
events which revolutionized the economics of the 
whole society. They transferred the loyalties of 
the people from the States to the central govern- 
ment. They are not effects, but causes. His 
measures were Intended to strengthen the Union 
by giving the contented and propertied individuals 
an opportunity to serve it. They were devices for 
making use of the upper classes.^ "My opinion 
has been and is," Hamilton says in defending the 
attachment of propertied individuals to the gov- 
ernment, "that the true danger to our prosperity 
Is not the overbearing strength of the Federal 
head but its weakness and imbecility for preserv- 
ing the Union of the States and controlling the 
eccentricities of State ambition and the explosion 
of factious passions. And a measure which con- 
sistently with the Constitution was likely to have 
the effect of strengthening the fabric would have 
recommended itself to me on that account."^ As 
to Bismarck, "the use of a dynasty as the indis- 
pensable cement to hold together a definite por- 

^ Rabbeno, U., Protezionlsmo Americano, Essay 3, ch. 1, sec. 3. 
^Cf. Oliver, F. S., Alexander Hamilton, p. 164. 
c Works, vol. 9, p. 28. Funding System, 1795 (?). 

[83] 



ALEXANDER HAMILTON 



tion of the nation,'^ was essential to the final 
unity of the German Empire, so to Hamilton the 
funding of the State debts and the Bank were 
devices for weakening local loyalties and for weld- 
ing the States into a harmonious nation. 

A debt, Hamilton believed, had a valuable psy- 
chological effect on a nation. "A national debt, 
if it is not excessive," he said in 178 1, "will be to 
us a national blessing. It will be a powerful 
cement of our Union. It will also create a neces- 
sity for keeping up taxation to a degree which, 
without being oppressive, will be a spur to in- 
dustry, remote as we are from Europe, and shall 
be from danger. It were otherwise to be feared 
our popular maxims would incline us to too great 
parsimony and indulgence. We labor less now 
than any civilized nation of Europe; and a habit 
of labor in the people is as essential to the health 
and vigor of their minds and bodies, as it is con- 
ducive to the welfare of the State. "^ In this 
passage we have Hamilton's psychology of the 
debt. The American people, he thought, would 
work together with the same enthusiasm to pay 
off their debt as they had fought together to oust 
European danger. The common effort to pay the 
debt would tend both to overshadow local and 

* Bismarck, Gedanken und Erinnerungen, ch. 13. 

^ Works, vol. 3, p. 387. On National Bank to Morris. 

[84] 



FINANCE AND UNITY 



factional differences, to stimulate the spirit of 
enterprise, and to weld the States into a Nation. 

Alexander Hamilton was great as a financier, 
but he was still greater as a nation-builder. His 
financial measures were intended not merely to 
establish the credit of the government; but to 
transform the whole national life; to weaken local 
and strengthen central authority; to nationalize 
business; to cement the Union of States; and to 
stimulate the ambition and enterprise of the 
people. These measures were a part of his plan 
for making a great cooperating nation; they were 
the financial side of his nationalism. 



[85] 



CHAPTER SEVENTH 

Dangers of Homogeneous Expansion 

It has become quite trite to discuss the pohtical 
antagonism which existed between Hamilton and 
Jefferson; but it is not so common to hear their 
economic creeds compared. Jefferson, as an 
individuahst, found all his sympathies with agri- 
culture. It appealed to him both because he was 
temperamentally in favor of country life and be- 
cause it was popular with the masses of the people. 
"We have an immensity of land," he wrote in 
1 78 1, "courting the industry of the husbandman. 
Is it best then that all our citizens should be em- 
ployed in its improvement, or that one half should 
be called off from that to exercise manufactures 
and handicraft arts for the other? Those who 
labor in the earth are the chosen people of God. 
.... Corruption of morals in the mass of culti- 
vators is a phenomenon of which no age nor 

nation has furnished an example While we 

have land to labor then, let us never wish to see 
our citizens occupied at the workbench or twirling 

a distaff Let our workshops remain In 

Europe The mobs of great cities add just 

so much to the support of pure government, as 
sores do to the strength of the human body."* 

a Jefferson, Th., Writings, vol. 2, pp. 229, 230. Notes on Vir- 
ginia. V^ritten 1781. Published 1784. 

[86] 



DANGERS OF EXPANSION 



Jefferson's natural inclination toward agriculture 
led him to take a sympathetic interest in the French 
and English economists who elevated the agri- 
cultural systems of economics above all others. 
He was familiar with the writings of the Physio- 
crats, Turgot and Smith.^ He corresponded 
with Dupont de Nemours and J. B. Say. He, of 
course, did not fall into the extreme fallacies of 
the individualistic school but his prejudices were 
all that way. 

Hamilton, who was as familiar with the French 
theories of agriculture and the writings of Adam 
Smith as Jefferson was, did not find them^ adapted 
to his purpose of diversifying national industry; 
and this alone was to him a sufficient reason for 
rejecting them. They might be true relative to 
certain anti-national desires and tendencies^ but 
they were not true for the nationalist. Hamilton 
was seeking a philosophy which would strengthen 
the economic life of the American nation. 

That the propensities of the people were toward 
agriculture was no argument to Hamilton in favor 
of drifting with them. He stood squarely against 
any let-alone doctrine. He was not so sure that 
the agriculturists were any more God's chosen 
people than the business men and manufacturers, 
and, any way, his interest was not in the par- 
ticular people, but in their civilization. A nation, 

a Jefferson, Th., Writings, vol. 14, p. 459. 
[87] 



ALEXANDER HAMILTON 



he believed, was richer in material goods and 
ideals which had a diversified life ; which had the 
intellectual and social life found only in cities; and 
which had busy marts and factories as well as 
farms. 

The economic creeds of Hamilton and Jefferson 
were fundamentally different and each, looking at 
society from his own point of view, failed to sym- 
pathize with the other. Their opposition was 
deeper than their reason; it was grounded in their 
emotions, beliefs, and temperaments. 

As he looked over the country, Hamilton saw a 
homogeneous economic organization. "At pres- 
ent some of the States," he writes in the Federal- 
ist, "are little more than a society of husbandmen. 
Few of them have made much progress in those 
branches of industry which give a variety and com- 
plexity to the affairs of a nation."* At this time 
about nine tenths of our population were farmers. 
This condition which had been our strength as an 
interdependent part of the British Empire,^ was 
our weakness, Hamilton believed, as an inde- 
pendent nation. We were weak because without 
diversification of our life we could never become 
an interdependent unit. National division of 
labor was unknown. Each farmer endeavored, as 
far as possible, to become self-sufficient. Under 

aV^orks, vol. 12, pp. 84, 85. The Federalist, No. 56. 

^ Smith, A., W^ealth of Nations. Book 2, ch. 5, vol. 1, p. 346. 

[88] 



DANGERS OF EXPANSION 



such conditions, as List has pointed out, agricul- 
ture is imperfect and a great part of the resources 
of nature remain undeveloped.^ With the same 
conditions in mind Callender observed that "towns 
and cities do not grow, for these are the creation 
of trade and industry; no wealthy class with new 
wants to satisfy develops; the whole population 
becomes accustomed to the simple, easy conditions 
of life, and there is small incentive to strive to 
change them."^ 

As a step toward overcoming this condition — 
toward breaking down the isolated economic 
organization — Hamilton advocates a vigorous 
policy of improvement in communication and 
transportation. "The good condition of post 
roads," he says in an unpublished draft of his 
Report on Manufactures, "especially where they 
happen to connect places of landing on the rivers 
and bays, and those which run into the western 
country will induce exceedingly to the cheapness of 
transporting and the facility of obtaining raw ma- 
terials, fuel and provisions. But the most useful 
assistance perhaps which it is in the power of the 
legislature to give to manufactures and which at 
the same time will equally benefit the landed inter- 
ests and commercial interests is the improvement 

* List, F., Das Nationale System der Politischen Oekonomie, 
ch. 20. 

^ Callender, G. S., Economic History of the United States, p. 7. 

[89] 



ALEXANDER HAMILTON 



of inland navigation. Three of the easiest and 
most important operations of this kind which 
occur at this time are the improvement of the com- 
munication between New York, Connecticut, 
Rhode Island and Boston, by cutting a passage 
through the peninsula of Cape Cod, the union of 
Delaware and Chesapeake Bays by a canal from 
the waters of the former to those of the latter and 
the junction of the Chesapeake Bay and Albe- 
marle Sound by uniting the Elizabeth and the 
Pasquotauk Rivers."^ He did not wish the con- 
struction of roads and canals left to the local 
authorities; but he wished the national govern- 
ment "to lend its direct aid on a comprehensive 
plan."^ Having observed the success of good 
roads and canals in England, and knowing 
America's need and uncommon facilities for them, 
he quotes a paragraph from Adam Smith, for 
which the reference "Smith, W. of Nations, vol. 
I, p. 219"^ is given on an early manuscript. 
"Good roads, canals, and navigable rivers," this 
passage runs in part, "by diminishing the expense 
of carriage, put the remote parts of a country 
more nearly upon a level with those in the neigh- 
, borhood of the town They are advantageous 

^ Hamilton, MS. Manufactures, 3, L. C. Cf. VV^'orks, vol. 4, p. 
159. Manufactures, 1791. 

^ Works, vol. 4, p. 159. Manufactures, 1791. 
^ See photograph opposite page 127. 

[90] 



DANGERS OF EXPANSION 



to the town, by breaking down the monopoly of 
the country in its neighborhood. They are ad- 
vantageous, even to that part of the country. 
Though they introduce some rival commodities 
into the old market, they open many new markets 
to its produce."^ 

In 1799 Hamilton wrote to Jonathan Dayton, 
the Speaker of the House, urging the adoption 
of a plan for the improvement of roads "coexten- 
sive with the Union. "^ In the same letter he pro- 
poses to amend the Constitution, empowering 
Congress to open canals. "The power is very 
desirable," he says, "for the purpose of improving 
the prodigious facilities for inland navigation with 
which nature has favored this country.'"" In his 
answer to Jefferson's message of December 7, 
1 80 1, he again suggests a policy of Internal im- 
provement for the national government. "To 
suggestions of the last kind," he says, "the adepts 
of the new school have a ready answer: 'Industry 
will succeed and prosper in proportion as it is left 
to the exertions of Individual enterprise."^ This 
favorite dogma, when taken as a general rule, is'^ 

^ Works, vol. 4, p. 160. Manufactures, 1791. Wealth of 
Nations, Book 1, ch. 11, pt. 1, vol. 1, pp. 148, 149. 

^ Works, vol. 10, p. 332. To Dayton, 1799. 

c Works, vol. 10, p. 334. To Dayton, 1799. 

^ Hamilton evidently regards Jefferson as a follower of Adam 
Smith. 



[91] 



ALEXANDER HAMILTON 



(true ; but as an exclusive one, it is false, and leads 
to error in the administration of public affairs."* 

The interest which Hamilton took in the im- 
provement of the means of communication and 
transportation is in full accord with his desire for 
a complex national life. If the nation developed 
manufactures in one section, and agriculture in 
another, the roads, canals, and navigable rivers 
would become indispensable instruments of co- 
operation. Unless the nation had the machinery 
by which it could reap the benefits, national divi- 
sion of labor would be futile ; unless the manufac- 
turer could reach his market in the agricultural 
sections, and unless the farmer could market his 
goods quickly in industrial centers, the whole plan 
of national cooperation would be at a standstill. 
Obstructions to internal commerce would force 
people near the seaboard to resort to foreign 
trade, while those in the interior, finding their 
produce unmarketable, would be checked in their 
economic development. On the contrary, roads 
and canals would facilitate the transfer of goods 
and news. Contact of one section with another 
would weaken provincialism and the means would 
be at hand to make national division of labor 
effective. 

"Questions about public lands," Fiske writes, 
"are often regarded as the driest of historical 

a Works, vol. 8, p. 262. December 24, 1801. 
[93] 



DANGERS OF EXPANSION 



deadwood Yet there is a great deal of the] 

philosophy of history wrapped up in this subject 
. . . . ; for without studying this creation of a na- 
tional domain between the Alleghenies and the 
Mississippi, we cannot understand how our Fed- 
eral Union came to be formed."* The policy of 
expansion advocated by Hamilton had for its pur- 
pose the completion of the territorial unity of the 
United States, and the control of the unsettled 
lands by the nation in the interest of the nation. 
At the close of the Revolution, seven of the origi- 
nal States claimed, as a part of their colonial 
grants, land in the West. Disputes were threat- 
ening the peace of the nation. "In the wide field 
of western territory," Hamilton said, "we per- 
ceive an ample theater for hostile pretensions, 
without any umpire or common judge to interpose 
between the contending parties."^ It was fortu- 
nate, therefore, that the States were prevailed 
upon, between 1784 and 1802, to turn over their 
disputed claims to the Federal government. 
These grants made up part of the vast national 
domain which was to be increased by treaty and 
purchase. 

Hamilton believed that we were "the embryo of 
a great empire," and that our situation prompted «^ 
us "to aim at an ascendant in American affai rs." / 

^ Fiske, John, The Critical Period of American History, ch. 5. 
^ Works, vol. 11, p. 45. The Federalist, No. 7. 

[93] 



ALEXANDER HAMILTON 



The specter of foreign Influence In western 
affairs haunted him. He thought that the very 
existence of the Union would be threatened If we 
were pent up on the Atlantic coast by Spanish, 
French, and the English possessions In the West. 
In 1795 he advocated the adoption of the Jay 
Treaty because It would give us control of the 
western posts. "The possession of those posts by 
us," he says, "has an Intimate connection with the 
preservation of union between our western and 
Atlantic territories; and whoever can appreciate 
the Immense mischiefs of a disunion will feel the 
prodigious value of the acquisition."^ Louisiana, 
In the South, was, down to 1801, In the possession 
of Spain.'' The control over the Mississippi which 
this gave her, seemed to Hamilton a serious 
menace to our nationality. "The navigation of 
the Mississippi," he writes to Jay In 1794, "Is to us 
an object of immense consequence If the 

. government of the United States can procure and 
secure the enjoyment of It to our western country, 
It will be an infinitely strong link of union between 
that country and the Atlantic States."' This right 
was secured the next year by treaty; but Hamilton 
^ wished all the western territory to be under 

^^ American control. "If Spain," he wrote a few 

a Works, vol. 5, p. 255. Camillus, 1795. 

^ Louisiana was receded to France at the Peace of Luneville. 
c Works, vol. 5, pp. 127, 128. To Jay, May 6, 1794. 
[94] 



DANGERS OF EXPANSION 



years later, "would cede Louisiana to the United . 
States, I would accept it absolutely if obtainable 
absolutely, or with an engagement to restore, if it 
cannot be obtained absolutely."^ He wished the 
nation to look to the possessions of the Floridas 
as well as Louisiana, and even "to squint at South 
America."^ The acquisition of these western 
territories, he said, he had long considered as 
"essential to the permanency of the Union.'" He 
was of the opinion that the cession of Louisiana to 
France was the most deeply interesting question 
since Independence; that it threatened the dis- 
memberment and insecurity of the Union, and that 
it was a justifiable cause for declaring war.^ 
Fortunately Jefferson and Hamilton agreed on the 
value of Louisiana, and the former, as President, 
in 1803, negotiated the purchase from Napoleon. 
"It was Napoleon," Seeley says, "who, by selling 
Louisiana to the United States, made it possible 
for the Union to develop into the gigantic Power 



we see. 



Mere ownership of the western lands, however, 
was not enough. Hamilton proposed to use them 
for national purposes. Although he was anxious 

a Works, vol. 10, p. 280. To Pickering, March 27, 1798. 
t Works, vol. 7, p. 97. To McHenry, June 27, 1799. 
c Works, vol. 10, p. 339. To Otis, January 26, 1799. 
d Works, vol. 6, pp. 333, 334. Pericles, 1803. 
e Seeley, J. R., The Expansion of England, p. 157. 
[95] 



ALEXANDER HAMILTON 



vLto improve the territorial imperfections of the 
nation, it was no part of his plan to encourage 
rapid settlement from the old States. He, in fact, 
desired the central government to control the lands 
in order to prevent migrations. If the nation con- 
trolled the western lands, three purposes would 
be accompHshed: the Union would be protected 
from foreign influences and encroachment; the 
sale of the lands would help liquidate the national 
debt; and the lands could be reserved or put 
in the hands of companies in order to prevent the 
shifting of population until redundancy required 
it. Hamilton was opposed, at that time, to any- 
thing like the "Homestead Act" of '62. Any 
policy, he thought, that would encourage individ- 
uals to leave the old States and to take small 
holdings in the West, was anti-national; it would 
perpetuate indefinitely the agricultural society. 
Since the population of the nation was small at 
best, any policy that would encourage rapid settle- 
ment would be prejudicial to the growth of a 
diversified national life. Hamilton's policy was 
to reserve the free lands for future national 
growth, and to encourage the people of his time to 
develop the resources of the old States. He con- 
sidered homogeneous expansion to be a national 
weakness and danger. 

How, then, was the "natural" flow of popula- 
tion westward to be checked? Had the govern- 

[96] 



DANGERS OF EXPANSION 



ment any duty? Was it impertinent for the states- 
man to meddle here ? It seemed to be a clear case 
of conflict between individualism and nationalism, 
and Hamilton did not hesitate in his choice. He 
proposed at different times four lines of policy by 
which the dislocation of population was to be dis- 
couraged: first, by teaching the people of the old 
States improved methods of agriculture ; secondly, 
by laying indirect and excise taxes rather than 
direct taxes on land; thirdly, by assuming the 
State debts ; fourthly, by his land policy. 

American agriculture was in a very primitive 
state, and there was a constant temptation to leave 
the lands, impoverished by unscientific methods, 
for those of frontier. Such a moving frontier as 
western settlement would produce, would, Hamil- 
ton thought, keep the people restless and unstable. 
He, therefore, proposed to teach the people im- 
proved methods in the cultivation of land, and for 
the furthering of this purpose he recommended, 
in a speech drafted for Washington, the establish- 
ment of a Board of Agriculture. "Agriculture 
among us," he says, "is certainly in a very im- 
perfect state. In much of those parts where there 
have been early settlements, the soil, impoverished 
by an unskillful tillage, yields but a scanty reward 
for the labor bestowed upon it, and leaves its 
possessors under strong temptation to abandon 
it and emigrate to distant regions, more fertile, 

[97] 



ALEXANDER HAMILTON 



\lj because they are newer, and have not yet been 
exhausted by an unskillful use. This Is every way 
an evil. The undue dislocation of our popula- 
tion from this cause promotes neither the strength, 
the opulence, nor the happiness of our country. It 
strongly admonishes our national councils to apply, 
as far as may be practical, by natural and salu- 
tary means, an adequate remedy. Nothing 
appears to be more unexceptionable and likely to 
be more efficacious, than the Institution of a 
Board of Agriculture."'' He also recommended, 
at another time, the founding of a society whose 
function It should be to encourage, by premiums, 
"new Inventions, discoveries, and Improvements In 
agriculture."^ 

Hamilton never advocated direct taxes on land. 
He favored Import duties and excise duties, such 
as the whiskey and carriage tax, but he feared that 
direct taxes on land would incite rapid settlement 
to new lands. "Particular caution," he says, as 
early as 1782, "ought at present to be observed in 
this country not to burthen the soil itself and Its 
productions with heavy impositions, because the 
quantity of unimproved land will Invite the hus- 
bandman to abandon old settlements for new, and 
the disproportion of our population for some time 

I to come will necessarily make labor dear, to reduce 

aW^orks, vol. 8, pp. 215, 216. December 7, 1796. 
^V^^orks, vol. 10, p. 331. To Dayton, 1799. 



[98] 



DANGERS OF EXPANSION 



\ 



which, and not to Increase it, ought to be a capital 
object of our policy."* 

This motive was also back of Hamilton's policy 
for assuming the State debts. If the national 
government had not assumed the debts, he said, in 
defence of the funding system, a particular incon- 
venience might have been the transfer of the popu- 
lation from "more to less beneficial situations in 
a national sense. "^ Some of the States, before 
assumption, had much heavier debts than others. 
To pay these debts, of course, these States would 
have had to lay heavy taxes on the citizens. This 
would cause migrations in order to escape taxa- 
tion either to the lightly taxed States or to the un- 
settled parts of the country. 

"It could not but disturb In some degree," as 
Hamilton expressed it, "the general order, the 
due course of industry, the due circulation of public 
benefits."'' A result of the transfer of the popu- 
lation from the settled to the unsettled sections of 
the country would be "to retard the progress in 
general improvement, and to impair for a greater 
length of time the vigor of the nation, by scatter- 
ing too widely and sparsely the elements of re- 
source and strength."'^ It was no 111 recommenda- 

a Works, vol. 1, p. 279. The Continentalist, July 4, 1782. 

^ Works, vol. 9, p. 26. The Funding System, 1795 (?). 

c Works, vol. 9, p. 26. The Funding System, 1795 (?). 

^ Works, vol. 9, p. 27. The Funding System, 1795 (?). 

[99] 



ALEXANDER HAMILTON 



(jtion of assumption, then, that It made the popula- 
tion more stable and, by equalizing the burden of 
the debt in all parts of the nation, made the people 
contented to develop a more complex life. "The 
true politician," Hamilton says, "will content him- 
self by seeing new settlements formed by the cur- 
rent of a redundant population: .... he will seek 
to tie the emigrants to the friends and brethren 

they leave But he will not accelerate this 

transfer by accumulating artificial disadvantages 
on the already settled parts of the country; he will 
even endeavor to avoid this by removing such dis- 
advantages if casual causes have produced them." 
'T deem It," he adds, "no small recommendation 
of the assumption that It was a mild and equitable 
expedient for preventing a violent dislocation of 
the population of particular States."* 

Hamilton sent to the House of Representatives, 
on the 22d of July, 1790, a report on the dis- 
position of public lands.^ The noticeable omis- 
sion Is that he says nothing about giving the lands 
away to settlers. He, on the contrary, recom- 
mends that the land be sold for thirty cents per 
acre, to be paid for either in gold or silver or in 
public security.'' The usual reason assigned for 
this charge is Hamilton's desire to extinguish the 

a Works, vol. 9, pp. 27, 28. Funding System, 1795 (?). 
^ Works, vol. 8, pp. 87-94. July 22, 1790. 
c Works, vol. 8, p. 90. 

[100] 



DANGERS OF EXPANSION 



public debt. While this is obviously true, it is a 
very superficial explanation. His land policy was 
fundamentally a part of his plan for building a 
heterogeneous, interdependent nation. It was a 
policy to discourage rapid settlement. 

Purchases of land, Hamilton thought, might be ^ 
contemplated from three classes: moneyed indi- ■ 
viduals and companies who will buy to sell again; 
associations of persons who intend to make settle- 
ments themselves; single persons or families resi- 
dent in the western country, or who might emi- 
grate thither.^ The first two classes would wish 
considerable tracts; the last, small farms. 
"Hence," Hamilton adds, "a plan for the sale of 
the western lands, while it may have due regard 
for the last, should be calculated to obtain all the 
advantages which may be derived from the two 
first classes."^ He therefore recommended that 
the chief land office be established at the seat of 
government so that both citizens and foreigners 
might have the first opportunity for large pur- 
chases. He further suggests that no Indian land 
be sold; that land be set aside to satisfy subscribers 
to the public debt; that sales of land be made, 
when desired, in townships ten miles square; and 
that no credit be given for any quantities less than 
a township. By his land policy he hoped to tie up 'I 

a Works, vol. 8, p. 88. 
bW^orks, vol. 8, p. 88. 

[101] 



ALEXANDER HAMILTON 



large tracts of land on which emigrants could not 
settle, and to encourage speculators, both foreign 
and domestic, to hold the land for future use. He 
hoped that the land purchased under these condi- 
tions, and the land reserved for public creditors 
and Indians, would leave only a limited amount 
for the small farmer. His plan was to restrict 
the land available for immediate settlement, and 
to put it in the hands of moneyed men, so that the 
natural current of population westward would be 
discouraged and the people would be forced to 
diversify their life. 

The Socialists have a very ingenious explana- 
tion for Hamilton's opposition to the rapid settle- 
ment of the free lands. The capitalistic system of 
society, Loria says, is based on the violent suppres- 
sion of free lands.* As long as free lands exist, 
the laborer can get a living for himself, and the 
capitalist has no opportunity to exploit him. 
Since the laborer will not work for wages as long 
as he can be a small proprietor, it becomes a policy 
of the capitalistic class to deprive him of his inde- 
pendence and power by suppressing free lands. 
If they are not suppressed in colonial countries, no 
capitalistic organization can develop, because 
wages are high and the laborer always has the 
alternate of becoming a landowner. If, on the 

^ Loria, A., Le Basi Economiche della Costituzione Sociale. 
Conclusion, sec. 3. 

[102] 



DANGERS OF EXPANSION 



contrary, the capitalist can get control of either 
the laborer by slavery or the lands by purchase or 
legislation, the establishment of his system is 
assured. "Thus the basis of capitalistic prop- 
erty," Loria says, "is always the same, it rests 
upon the suppression of the free lands and the ex- 
clusion of the laborer from access to the produc- 
tive powers of the soil.'"" 

Ugo Rabbeno accepts Loria's theory of society 
and, having reviewed the land policy of Hamilton, 
thinks that he finds in it proof for the socialistic 
interpretation of history.^ Hamilton, who, ac- 
cording to Rabbeno, is the prophet of American 
capitalism, endeavored, he claims, by his land 
policy to advance the interests of the rising capi- 
talistic class. He sought to keep the poor laborer 
off the free lands, so that wages could be forced 
down and the capitalistic form of production 
would develop. By the law of 1796 the recom- 
mendations of Hamilton, in a slightly modified 
form, were enacted into law. "Laborers," Rab- 
beno says, "were absolutely prevented from ac- 
quiring public lands ; whilst hundreds of thousands 
of acres in separate lots became the property of 
capitalists or corporations, who either kept them 
for themselves, constituting enormous estates, or 

* Loria, A., Le Basi Economiche della Constituzione Sociale, 
ch. 1. 

^Rabbeno, U., Protezionismo Americano, Essay 2, ch. 4, sec. 
29. 

[103] 



if 



ALEXANDER HAMILTON 



else resold them with great profits to the colon- 
ists."* Rabbeno, therefore, concludes that the 
central government, run for the benefit of moneyed 
men, had a land policy which tallied with the 
interests of the capitalists; that it was an abortive 
effort to establish the capitalistic system before its 
day, and that, in so far as it kept the proletariat 
off the free lands, it made its exploitation possible. 
Loria and Rabbeno have interpreted history 
from the materialistic point of view. Their 
theory is that religions, morals, laws, ideas, and 
motives of great men depend on and are deter- 
mined by the existing economic organization of 
society. They, however, have disregarded the 
complexity of social causes. Their purpose is to 
prove that all history is class struggle and they 
therefore need the materialistic interpretation of 
history; but they should remember that this theory 
is true only in relation to its premise. There are 
other causes in society. They are religious, legal, 
and personal. Ideas are creator as well as created. 
Man is not only a product of conditions; he is also 
a molder of his environment. His will is a factor 
in the equation. However much the socialist tries 
to laugh the great-man theory of history out of 
court, the fact remains that what men have felt 
and thought has determined the course of human 

* Rabbeno, U., Protezionismo Americano, Essay 2, ch. 4, sec. 
29. 

[104] 



DANGERS OF EXPANSION 



progress. Their wills have directed, restrained, 
or encouraged the incoherent tendencies or pas- 
sions of the people. They have shown that human 
society is not merely a mechanism, fated inevitably 
to certain ends, but that it is an organism for 
which we are responsible and whose destiny is 
largely within the power of man. 

Rabbeno, in his search for evidence of Loria's 
theory in America, does not strengthen his chosen 
faith by citing Hamilton. Hamilton was in no 
way the prophet and champion of the capitalistic 
class; he was the prophet and champion of Ameri- 
can Union. If there was any one thing which he 
hated and fought, it was the rule of a faction or 
a class. He did not care which particular class 
was supreme so long as that supremacy was in line 
with national greatness. Classes as well as indi- 
viduals were his means for nation-building. They 
were, we might say, chessmen on the national chess 
board, and it was his duty and the duty of every 
statesman, he believed, to move and control them 
so as to win the game. There were, in fact, no 
classes in the socialistic sense in Hamilton's day. 
There were two parties; the national and the anti- 
national. The former was made up of conserva- 
tive and, to some extent, wealthy men who be- 
lieved in the traditions of the Anglo-Saxon race. 
Hamilton in his statesmanship used this class to 
strengthen nationality. The latter party was made 

[105] 



ALEXANDER HAMILTON 



^up of men imbued with French ideas and preju- 
dices of States Rights. They were restless and un- 
stable. To Hamilton's mind they were a faction 
which should be restrained for the national wel- 
fare. His policy concerning free lands directed 
against this latter class was, therefore, a national 
policy. It was to prevent homogeneous expan- 
sion and to require the people to build up an inter- 
dependent, diversified life. It was to strengthen 
the nation by using one part of the population and 
restraining another. 

The national propensity of the American people 
for agriculture led them to favor a philosophy that 
made agriculture the most, if not the only, produc- 
tive industry. The doctrines of the Physiocrats 
came to this country along with the rest of the 
French invasion. They were widely enough 
known to lead Hamilton to answer them, with 
arguments taken substantially from Adam Smith, 
in his Report on Manufactures. 

The Physiocrats maintained the exclusive pro- 
tectiveness of agriculture. "Labor," Hamilton 
says in stating their argument, "bestowed upon the 
cultivation of land produces enough not only to 
replace all the necessary expenses incurred in the 
business, and to maintain the persons who are em- 
ployed in it, but to afford, together with the ordi- 
nary profit on the stock or capital of the farmer, a 
net surplus or rent for the landlord or proprietor 

[106] 



DANGERS OF EXPANSION 



of the soil. But the labor of artificers does 
nothing more than to replace the stock which em- 
ploys them . . . . , and yields the ordinary profits 
upon that stock. It yields nothing equivalent to 
the rent of land; neither does it add anything to the 
total value of the whole annual produce of the land 

and labor of the country It can only be by 

saving or parsimony, not by the positive produc- 
tiveness of their labor, that the classes of artificers 
can, in any degree, augment the revenue of the 
society."^ 

To this Hamilton answers : First, if the manu- 
factui'er adds to the raw material value equal to 
the agricultural products consumed, it can not be 
said that his labor is unproductive; second, the 
wealth of the community cannot be increased either 
by the cultivator or artificer, except by saving; 
thirdly, since production can be increased only by 
an increase in the quantity or in the productive 
powers of labor, the labor of the artificer is at 
least as productive as the cultivator, since it is 
more susceptible to subdivision and the applica- 
tion of machinery.^ 

Hamilton proceeds now to criticise Adam 
Smith's conclusion that agriculture is more pro- 
ductive than any other employment. It will be 

a Works, vol. 4, pp. 74, 75. Cf . Wealth of Nations, Book 4, 
ch. 9, vol. 2, pp. 162-172. 
^ Works, vol. 4, pp. 75-77. Manufactures, 1791. 

[107] 



ALEXANDER HAMILTON 



interesting to compare an early unpublished draft 
with the final draft of his opening paragraph: 

^ "But while it has been thus con- "But while the exclusive produc- 

tended that the labour of artificers tiveness of agricultural labor has 

and manufacturers ought not to be been denied and refuted, the supe- 

considered as wholly barren and riority of its productiveness has 

unproductive it has been at the been conceded without hesitation, 

same time conceded that it is not As this concession involves a point 

equally productive with that of of considerable magnitude, in rela- 

husbandmen or cultivators; a post- tion to maxims of public adminis- 

iion which has obtained tio inconsid- tration, the grounds on which it 

erable currency hi this country, and rests are worthy of a distinct and 

which being of great importance in particular examination." b 
its relation to maxims of public ad- 
ministration is not unworthy of an 
examination on the grounds on 
which it rests." a 

"No equal capital," Adam Smith says, "puts 
into motion a greater quantity of productive labor 

than that of the farmer In agriculture, too, 

nature labors along with man and though her 
labor costs no expense, its produce has its value, as 
well as that of the most expensive workmen."*' 
This argument Hamilton refers to as "both quaint 
and superficial."^ The skill of man, he argues, 
laid out on manufactured products may be more 
productive of value than the labor of nature and 
man combined. He says further that mechanical 
powers are more applicable to manufactures than 
to agriculture; that manufacturing labor is more 

* Hamilton, MS. Manufactures, 2, L. C. 

^W^orks, vol. 4, p. 77. Manufactures, 1791. 

c Smith, A., Wealth of Nations, Book 2, ch. 5, vol. 1, p. 343. 

^ Works, vol. 4, p. 77. Manufactures, 1791. 

[108] 



DANGERS OF EXPANSION 



constant since it is not dependent on seasons ; and^. 
that the agriculturist, because of his easy condi- 
tion of life, is often remiss in cultivation; while 
manufacturing labor, on the contrary, has open to 
it a wider field for the exertion of ingenuity and 
more stimuli impelling it to productiveness.* 

Hamilton, like Adam Smith, had no conception 
of rent as an unearned increment.'' But while he 
did not understand this phenomenon of distribu- 
tion — a phenomenon which had not yet appeared 
in America — he saw, from the point of view of 
production, the fallacy of the Physiocrats and of 
Smith, who assumed that, because land yielded 
rent, it had a superior productiveness. 

Rent, we may mention parenthetically, has two 
aspects. If we consider it as a factor in distri- 
bution, there arises, by virtue of the institution of 
private property, an unearned increment; rent 
here is income, going to the landlord because 
he has a peculiar social advantage. His land, 
having a superior productiveness or position over 
the price-determining land on the margin of cul- 
tivation, yields a rent which, as far as he is per- 
sonally concerned, is unearned. On the other 
hand, rent from the point of view of the entre- 
preneur is a sum of money paid for a peculiar 

* Works, vol. 4, p. 78. Manufactures, 1791. 
^Rabbeno, U., Protezionismo Americano, Essay 3, ch. 1, sec. 
12. 



[109] 



ALEXANDER HAMILTON 



form of capital goods, i.e., it is interest paid for 
capital in land. From the standpoint of produc- 
tion, rent and interest are identical. 

The difficulty with Smith and the Physiocrats 
was that they confused these two ways of looking 
at rent. They saw that the landlord received an 
income apparently for no other reason than that 
he owned the land; but instead of ascribing this to 
the institutional cause of distribution, they ex- 
plained it as a phenomenon of production. This 
was the fallacy. The distinction which they drew 
between capital in manufacturing goods and capi- 
tal in land, Hamilton said, was "rather verbal 
than substantial."* "The rent of the landlord and 
the profit of the farmer," he says, "are nothing 
more than the ordinary profits of two capitals 
belonging to two different persons, and united in 
the cultivation of a farm."^ "The question must 
still be," he concludes, "whether the surplus, after 
defraying expenses, of a given capital, employed 
in the purchase and improvement of a piece of 
land, is greater or less than that of a like capital, 
employed In the prosecution of a manufactory 
.... or rather perhaps whether the business of 
agriculture or that of manufactures will yield the 
greater product, according to a compound ratio 
of the quantity of the capital and the quantity of 



a Works, vol. 4, p. 79. Manufactures, 1791. 
b Works, vol. 4, p. 80. Manufactures, 1791. 

[110] 



DANGERS OF EXPANSION 



labor which are employed In the one or in the i 
other."^ ^ 

Mankind in its social evolution develops, ac- 
cording to Herbert Spencer, from an incoherent, 
homogeneous to a coherent, heterogeneous so- 
ciety.^ Cooperation and differentiation are the 
very essence of progress. In the time of Hamil- 
ton, the United States was in the first stage of 
social evolution — it was incoherent and homo- 
geneous. The purpose of Hamilton's economic 
policies was to develop, by legislation, social co- 
herence and heterogeneity. His goal was the 
national diversification of industry. Within the 
nation he wished to see great cities as well as 
great plantations, busy factories as well as fertile 
farms, and vigorous, enterprising merchants as 
well as husbandmen. His idea was that the more 
complex the national life was, the more the parts 
would be dependent on each other and that, united 
with the bonds of mutual needs, we would become 
a strong coherent nation. Free lands, he thought, 
would perpetuate the incoherent, colonial life, 
which, however desirable it was for us as colonies 
of Great Britain, was undesirable for us as a 
nation. His policy, opposing western emigration, 
was intended to erect barriers, behind which an , 
interdependent, complex civilization might grow, j 

* Works, vol. 4, pp. 80, 81. Manufactures, 1791. 
^Spencer, H., Principles of Sociology, pt. 2, ch. 12, sec. 271. 

[Ill] 



CHAPTER EIGHTH 
Manufactures 

Hamilton was not wont to lay down principles 
or draw conclusions without the facts before him. 
He therefore conducted, as preparation for the 
writing of his famous Report on Manufactures 
submitted to Congress, December 5, 1791, an in- 
vestigation into the actual condition of manufac- 
tures in the United States at that time. 

Some writers have noticed that Hamilton 
seemed in his report to be familiar with the state 
of industry in this country but they give no expla- 
nation of how he obtained his information. 
Among the Hamilton papers in the Library of 
Congress there are a large number of unpublished 
letters, written to him or his agents, from all parts 
of the country, which discuss the extent, organi- 
zation and needs of manufactures. It will be 
possible here only to indicate briefly the nature of 
this material. 

Hamilton sent a request to a leading citizen, 
usually an official, in each of the large states, for 
information on manufactures; these persons, in 
turn, requested the information from leading citi- 
zens and manufacturers in the towns. The system 
of gathering the facts was not the same in every 
state. John Chester writes to Hamilton from the 

[112] 



MANUFACTURES 



office of Supervisor in Connecticut, October ii, 
1 79 1 : "After having revolved in my mind several 
plans for obtaining the necessary information, 
none was thought of which afforded so flattering 
prospects as that which was adopted, of writing 
to each member of the upper branch of our legis- 
lature as well as to many of the principal manu- 
facturers."* "Agreeable to your request," runs 
another letter dated at Charleston, S. C, Sep- 
tember 3, 1 79 1, "have wrote a circular letter to 
the most leading characters throughout the state, 
relative to manufactures that may be carried on 
in the several counties."^ A letter received in 
reply to a letter similar to the above, sent out by 
John Dexter, Supervisor in Rhode Island, is in 
part as follows: "I duly rec"^ thy IJ^ of the 7*^ ins^ 
with a copy of a U from the Secr^ of the Treasury 
of the 2 2"^ up inclosed, and .... I shall cheerfully 
give every information in my power which may 
contribute to further the views of the National 
Legislature or assist the Secr^ in forming a plan 
for promoting Manufactures in the United 
States."^ 

In his investigation Hamilton gave particular 

a Hamilton, MSS., vol. 11, p. 181, L. C. 

^Hamilton, MSS., vol. 11, p. Ill, L. C. Stevens to Hamil- 
ton. 

^^ Hamilton, MSS., vol. 11, p. 75, L. C. Moses Brown to 
John Dexter, July 22, 1791. 

[113] 



ALEXANDER HAMILTON 



attention to domestic manufactures. "There is," 
he observed, "a vast scene of household manu- 
facturing which contributes more largely to the 
supply of the community than could be imagined 
without having made it an object of particular 
inquiry."^ Several small but careful house to 
house censuses of domestic production were 
taken, the most valuable being that of Drury 
Ragsdale in Virginia. In at least one case the 
facts were gathered by young women. Very often 
samples of domestic products accompanied the 
reports submitted to the Secretary of the Treas- 
ury. P. Colt in reviewing manufactures in Con- 
necticut states very clearly the organization of 
industry in that state. "The manufactures of this 
state," he writes, "naturally present themselves 
to our view under the following heads: Those 
carried on in families merely for the consumption 
of those families; those carried on in like manner 
for the purpose of barter or sale; and those 
carried on by tradesmen, single persons, or com- 
panies for supplying the wants of others, or for 
the general purpose of merchandise or com- 
merce."^ 

We may obtain from the unpublished letters 
and reports gathered by Hamilton and from his 

a Works, vol. 4, p. 128. Manufactures, 1791. 
to Hamilton, MSS., vol. 11, p. 69. To John Chester, July 21, 
1791. 

[114] 



MANUFACTURES 



summaries in his report some idea of the nature 
and extent of manufactures in 1790 in this 
country. Fragmentary as the material is, it 
throws much light on the economic question which 
Hamilton was facing. 'The inquiries to which 
the subject of this report has led," he writes in his 
report, "have been answered with proofs that 
manufacturies of iron, though generally under- 
stood to be extensive, are far more so than is 
commonly supposed."" A report, probably from 
Providence, R. L, says that nails are extensively 
manufactured and that in 1790 4,500 scythes, axes, 
and drawing knives were made.^ Among others 
Hamilton said that there were manufactures of 
implements and tools, stoves and household uten- 
sils, steel and iron work for carriages and ship- 
building, and firearms.^ Coppersmiths and brass 
founders were said to be numerous, their chief 
products being: copper and brass wires, utensils, 
andirons and philosophical apparatus.*^ 

The most important articles made from wood 
were: ships, cabinet wares, cotton and woolen 
cards, and coopers' wares. "Ships," Hamilton 
says, "are nowhere built in greater perfection."" 

a Works, vol. 4, p. 164. Manufactures, 1791. 
^Hamilton, MSS., vol. 11, p. 63. 
c Works, vol. 4, p. 127. Manufactures, 1791. 
d Works, vol. 4, pp. 127, 169. Manufactures, 1791. 
e Works, vol. 4, p. 172. Manufactures, 1791. 
[115] 



ALEXANDER HAMILTON 



While it is not desired to press the point, the 
following remark concerning our timber is inter- 
esting, especially in the light of the modern policy 
of conservation. ''The increasing scarcity and 
growing importance of that article (timber) in 
the European countries," Hamilton observes, 
"admonish the United States to commence, and 
systematically to pursue, measures for the pres- 
ervation of their stock."^ 

Hamilton also speaks of there being manu- 
factures of gunpowder, sugar, flour, liquors, 
printed books and paper. "Manufactories of 
paper," he says, "are among those which are 
arrived at the greatest maturity in the United 
States."'' 

Manufactures of leather had in 1790 reached 
such a stage that they could defy foreign competi- 
tion.^ Hides were tanned and curried, and saddles 
and harness made.*^ A committee in Charleston, 
S. C, sent in an extensive report on leather manu- 
factures in that town.^ Both glass and sailcloth 
manufactures were reported. Sam Breek of Bos- 
ton begins a letter to Hamilton as follows: "In 
conformity with your wish it would afford me 

a Works, vol. 4, p. 172. Manufactures, 1791. 
^ Works, vol. 4, p. 190. Manufactures, 1791. 
c Works, vol. 4, p. 173. Manufactures, 1791. 
<i Hamilton, MSS., vol. 11, p. 63. L. C. 
e Hamilton, MSS., vol. 11, p. 165, L. C. 

[116] 



MANUFACTURES 



great pleasure to make you acquainted with the 
exact state of the duck and glass manufactures in 
this town."* 

Some attempts had been made in growing the 
mulberry tree for the purpose of raising the silk- 
worm.^ From Morristown, N. J., however, came 
the report that silk manufactures were "yet only 
in embryo."^ The manufacturing of lace was 
carried on, upon a limited scale, in Ipswich, Mass."^ 

The most careful census of cloth production in 
families was carried out by Drury Ragsdale, In- 
spector for Survey No. 3, King William Co., Va. 
The actual returns from twenty families "compre- 
hending all classes from the richest to the poorest" 
were: 

Total number of persons in families (including slaves) 301 
Total number of yards of cloth made .... 2914 
Stockings made (both fine and coarse), pairs • • 260 
Total value of products ;^501 2 

"It may not be amiss to inform you," Ragsdale 
writes, "that it is my opinion that the manufac- 
tures in my survey carried on in private families 
consist principally if not altogether of cotton and 
wool, most of the fine cloth is of cotton alone. 

a Hamilton, MSS., vol. 11, p. 113, L. C. September 3, 1791. 
'^Hamilton, MSS., vol. 11, p. 109, L. C. 

''Hamilton, MSS., vol. 11, p. 97, L. C. Conduit to Dunham. 
August 25, 1791. 

d Works, vol. 4, p. 189. Also MSS., vol. 11, p. 51. 

[117] 



ALEXANDER HAMILTON 



.... There being a scarcity of wool it is generally 
mixed with cotton."^ 

While cloth was made generally in the homes 
of the people, promising beginnings were being 
made in factory production. Hamilton speaks of 
Sir Richard Arkwright's invention of the spinning 
frame,^ and says that the manufactory at Provi- 
dence had the merit of being the first to introduce 
it into the United States.'^ A factory established 
at Beverly, Mass., for the purpose of making 
"cotton goods of the kind usually imported from 
Manchester for men's wear," reported the fol- 
lowing equipment: one carding engine; nine spin- 
ning jennies of sixty to eighty-four spindles each; 
one doubling and twisting machine; one slubbing 
machine; one warping mill; sixteen looms with 
flying shuttles; two cutting frames; one burrer and 
furnace with apparatus to singe the goods; ap- 
paratus for coloring, etc."^ 

Hamilton was interested in the founding, by the 
Society for the Establishment of Manufactures, 
of a factory for the "making and printing of 
cotton goods."® A resolution was sent to him 

a Hamilton, MSS., vol. 11, pp. 159, 161, L. C. September 
29, 1791. 

^ Works, vol. 4, p. 90. Manufactures, 1791. 

cWorks, vol. 4, p. 186. Manufactures, 1791. 

d Hamilton, MSS., vol. 11, p. 119, L. C. Cabot to Hamilton, 
September 6, 1791. 

e Works, vol. 4, p. 182. Manufactures, 1791. 

[118] 



MANUFACTURES 



signed by members of the society, requesting him 
"to procure and engage for the service of the so- 
ciety such artists and workmen as you shall deem 
necessary, and upon such terms as shall appear to 
you reasonable, for the purpose of carrying on a 
manufactory of cotton In Its various branches and 
printing the same."* 

Woolen goods also were produced extensively 
"In a domestic way," and essays were being made 
In factory production. The making of hats, 
Hamilton observed, had acquire 4_ matur ity.^ 
J. P. Cooke writes John Chester concerning the 
hat industry in Danbury, Connecticut. "The 
manufacturing of hats of all kinds," he said on 
September 12, 1791, "is prosecuted upon a large 
scale in this town; from the factory of O. Burr 
and Company, which is probably the largest of 
the kind in the state, large quantities of hats are 
sent abroad, as also from several others, although 
to a much less amount. "° In 1790 O. Burr & 
Company produced 443 felt hats at 5/; 9 girls' 
hats at 7/6; 19 plain castors at 24/; 1862 napt 
korums at 15/; 85 beavers at 39/; 99 napt castors 
at 24/.^ 

There was a beginning of the fabrication of 

a Hamilton, MSS., vol. 11, p. 83, L. C. 
^ Works, vol. 4, p. 187. Manufactures, 1791. 
c Hamilton, MSS., vol. 11, p. 128, L. C. 
d Hamilton, MSS., vol. 11, p. 130, L. C. 

[119] 



ALEXANDER HAMILTON 



cloths, cassimeres, and other woolens in Hartford, 
Connecticut.* Speaking of this young industry, P. 
Colt, on July 21, 1791, writes: "This manu- 
facture commenced about three years agone with 

a capital of £1,200 This stock being found 

too small to effect the views of the company 
which was to determine the question if American 
wool would make cloth equal to British cloths out 
of British wool and at reasonable prices, was ex- 
tended by new subscriptions to £2,800 The 

legislature, being sensible of the importance of 
encouraging this infant establishment, granted 
them a lottery to raise £1,000."^ In a town, prob- 
ably Providence, the woolen manufactures were 
reported to be limited because of the scarcity of 
wool. "Was the raising of sheep duly en- 
couraged," the report says, "a sufficient quantity 
must be manufactured for the whole of the inhabi- 
tants.'"' Hamilton's solution of the difficult prob- 
lem of encouraging wool-growing and woolen 
manufactures was to grant premiums for the in- 
crease and improvement of wool production and 
to pay these premiums from a fund raised by levy- 
ing a protective duty on woolen goods imported.*^ 

a Works, vol. 4, p. 187. Manufactures, 1791. 

b Hamilton, MSS., vol. 11, p. 71, L. C. Colt to Chester, July 
21, 1791. 

^^ Hamilton, MSS., vol. 11, p. 63, L. C. Richmond to 
Wheeler, October 10, 1791. 

^ Works, vol. 4, p. 188. Manufactures, 1791. 

[120] 



MANUFACTURES 



A few Interesting sidelights were brought out 
by Hamilton's Investigation. Anselm Bailey of 
Surry, Virginia, writes to T. Newton as follows: 
"Thine of the 26th of last mo. I received and set 
about with much cheerfulness to comply with thy 
request but thou'l be perhaps surprised at hearing 
that most of the people In these parts have got In 
such a spirit of jealousy that they suspect some 
design unfavorable to them In every thing that Is 
attempted of a public nature. 'What are they 
going to tax our Cloath too' — was the reply of 
several."* Those acquainted with the appeals of 
manufacturers to Congress In recent years will find 
In one John Mix of New Haven, Connecticut, an 
ancestral likeness whose face Is strangely famil- 
iar. "I was not bread up," John writes on Sep- 
tember 30, 1 79 1, "to any Mechanical Business, 
but had part of an Education at Yale College. 
.... Being ever a friend and Supporter of the 
Rights of my country and finding agriculture and 
manufactures must be the main Supporters of the 
country, I applied my attention to find out some 
kind of Manufactures that had not met with the 
particular attention of the Publlck. 

"In September, 1789, I accldently cast my eyes 
on a particular hard metal button; after examina- 
tion of It I was fully persuaded In my own mind 

a Hamilton, MSS., vol. 11, p. 93, L. C. August 23, 1791. 
[121] 



ALEXANDER HAMILTON 



that I could find out the composition and that they 
might be made to advantage." 

After describing his button factory he continues : 
*'We, therefore, Earnestly wish and hope that 
Congress would Early in their approaching Ses- 
sion take up the Matter with Spirit and resolu- 
tion and lay such heavy Duties on Articles of But- 
tons that it will amount to a Prohibition of Im- 
porting Buttons into this country. We shall then 
be able to Enlarge our Button factory in a very 
advantageous and Extensive manner boath for the 
Publick Benefit and our own Advantage."^ It is 
refreshing after this to read that Jonathan Hill 
of Providence, a manufacturer of fringe, lace, and 
webbing, can make his goods at a lower rate than 
they can be imported so that he "wishes for 
nothing but to be known."^ 

Many arguments were current in Hamilton's 
day maintaining that manufactures could not be 
successfully established in a country with vast 
tracts of unoccupied lands. "To all the argu- 
ments which are brought to evince the impractica- 
bihty of success in manufacturing establishments 
in the United States," Hamilton answered with 
the facts of his investigation in mind, "it might 
have been a sufficient answer to have referred to 

a Hamilton, MSS., vol. 11, p. 163, L. C. To John Chester, 
b Hamilton, MSS., vol. 11, p. 63, L. C. 



[122] 



MANUFACTURES 



the experience of what has been already done."* 
Other objections advanced against manufactures 
were: first, scarcity and dearness of labor; second- 
ly, want of capital; thirdly, the retarding effect 
which they would have on the settlement of new 
lands. 

Hamilton, while admitting that the scarcity and 
dearness of labor were real difficulties, did not 
think that they were insuperable. "There are 
large districts," he observed, "which may be con- 
sidered as pretty fully peopled; and which, not- 
withstanding a continual drain for distant settle- 
ment, are thickly interspersed with flourishing and 
increasing towns. "^ In such districts, he thought, 
the complaint of scarcity of hands was on the point 
of ceasing. The stock of manufacturing labor 
would also be augmented, he said, by the use which 
could be made of women and children; by the vast 
extension in the improvement of machinery; by 
the employment of persons engaged in other occu- 
pations during their hours of leisure; and by 
attracting foreign immigrants.*' But he adds that 
even if labor is higher here than in Europe "there 
are grounds to conclude that undertakers of manu- 
factures in this country can, at this time, afford to 
pay higher wages to the workmen they may em- 

a Works, vol. 4, p. 126. Manufactures, 1791. 

^ Works, vol. 4, p. 108. Manufactures, 1791. 

c Works, vol. 4, pp. 108, 109. Manufactures, 1791. 

[123] 



ALEXANDER HAMILTON 



ploy, than are paid to similar workmen in 
Europe."* 

As for capital Hamilton thought that there 
would be no more difficulty in finding it for im- 
proving manufactures than for developing agricul- 
ture and trade. It is an obvious truth he said that 
the "opening affairs of this rising country afford 
profitable objects for more capital than it has yet 
acquired.^ But the want of capital will be 
remedied, he argued, by the installation of banks 
and by the use of the funded debt which we have 
already noticed,'"" and by the introduction of for- 
eign capital. It was his belief that foreign capital, 
which had already helped to improve our means 
of public communication, might be expected to 
assist in manufactures. 

While Hamilton thought that the conversion of 
waste into cultivated lands was of great moment in 
the political calculations of the country, he did not 
regard it as of primary importance. "It is mani- 
festly an error," he remarks, "to consider the pros- 
perity of agriculture as in proportion to the quan- 
tity of land occupied or even to the number of 
persons who occupy it or to both. It is rather to 
be considered as in a compound ratio to the 

^ Works, vol. 4, p. 111. Manufactures, 1791. 

^ Hamilton, MS. Manufactures, 3, L. C. 

c Chapter Sixth, pp. 73 and 78. 

^ In an early draft "political" reads "oeconomical." 

[124] 



MANUFACTURES 



quantity of land occupied and the degree of im- 
provement."^ Any retarding of settlement caused 
by manufactures would be compensated for by 
increase in vigor of cultivation and even the num- 
ber engaged in agriculture might be increased, 
since foreigners attracted to this country by manu- 
factures might later yield to the temptation to take 
up free land.^ 

The actual state of manufactures and the 
answers to the objections to the further encourage- 
ment of them which we have just reviewed, indi- 
cate that by 1790 both substantial beginnings had 
been made in domestic and factory production and 
that the prospects were good for their develop- 
ment. This condition had been largely forced 
upon the United States, first, by the exclusion of 
foreign goods during the Revolution, and then, by 
the policy of foreign nations which prevented 
America from settling her trade balance with the 
products of her soil. Her foodstuffs and raw 
materials were barred from foreign markets and 
she could not pay for her imports with exports. 
Her only alternate was to manufacture for her- 
self. When Hamilton wrote his report he saw 
this condition. "If Europe," he says, "will not 
take from us the products of our soil, upon terms 
consistent with our interest, the natural remedy 

* Hamilton, MS. Manufactures, 1, L. C. 
^ Works, vol. 4, p 103. Manufactures, 1791. 

[125] 



ALEXANDER HAMILTON 



is to contract, as fast as possible, our wants of 
her."* 

Writers have observed that Hamilton's sug- 
gestions on manufactures were not, as they were in 
the case of his other reports, immediately fol- 
lowed, and that they were not even urged by him 
again. The explanation is not far to seek. 
During the year following the publication of the 
Report on Manufactures war broke out between 
France and the First Coalition, and from that time 
until Waterloo Europe was in an almost continu- 
ous state of hostility. The markets which before 
America had been refused were now thrown open 
to her, and under her cherished policy of neu- 
trality she reaped a rich harvest in trade. The 
immediate need for diversifying industry was re- 
moved. Hamilton himself turned his energies, 
from necessity, to questions of foreign policy and 
international law. He probably, however, felt 
that the conditions forced upon us were unfortu- 
nate since they perpetuated the colonial economy, 
and were, therefore, anti-national. He believed 
that it was "most wise for us to depend as little 
as possible upon European caprice, and to exert 
ourselves to the utmost to unfold and improve 
every domestic resource."^ 

a Works, vol. 4, p. 102. Manufactures, 1791. 

^ Works, vol. 9, p. 484. To Goodhue, June 30, 1791. 

[126] 



I 



■;^/ff.\ 



U^ L ././.' f. 4 '^^"-^^ ^v «— t*— ^^— ^^ /i^^^^'i^ ' 






p>. 



/;.- 
A 






..X. 






j<^s\ 






-'i-^^ftil 












//...^ 






^ 



^ 



^w fe " / ^.il^.-/>..^w-^L-^^^^^ 



A Page from an Early Draft of Hamilton's Report on 

Manufactures, Showing Reference to "Wealth 

of Nations," in His Handwriting 

(Page 219 probably intended to refer to page 229) 



CHAPTER NINTH 

Protection 

In the Library of Congress there are three 
more or less complete preliminary drafts and the 
final draft of Hamilton's Report on Manufactures 
which he submitted to Congress December 5, 
1 79 1. Drafts one, two, and final are in his own 
handwriting; the third was copied by a clerk. 
Hamilton wrote this report during very busy 
times, and for this reason even the final draft is 
somewhat disconnected and rambling; but the 
manuscripts show many revisions and additions. 
It is clear from the text itself that he had before 
him at the time of writing a copy of Adam Smith's 
Wealth of Nations. Conclusive evidence of the 
fact, however, is found in the reference, ''Smith, 
W. of Nations, vol. i, p. 219,"* which appears on 
an early draft of the report but which was subse- 
quently scratched out. 

Prior to the writing of the Report on Manu- 
factures five editions of the Wealth of Nations had 
appeared in England.^ They were published in 
1776, 1778, 1784, 1786, and 1789, respectively. 

* See photograph of manuscript on opposite page. "P. 219" is 
probably a slip of the pen and intended for p. 229 of the third 
English edition (1784). 

^ The sixth edition is dated 1791, the year in which the Report 
on Manufactures was published. 

[127] 



ALEXANDER HAMILTON 



It was enough in demand in this country by 1789 
that an American edition was put out by a Phila- 
delphia publisher. When Hamilton came to con- 
sider the question of manufactures, he found that 
public men were generally acquainted with its 
principles of freedom in trade and industry, and 
he, therefore, thought it advisable to state and 
answer them fully in his report. 

"To endeavor," Hamilton says in stating the 
position of the school of Smith, "To endeavor, by 
the extraordinary patronage of government, to 
accelerate the growth of manufactures, is, in fact, 
to endeavor, by force and art, to transfer the 
natural current of industry from the more to a 

less beneficial channel It can hardly ever be 

wise in a government to attempt to give a direc- 
tion to the industry of its citizens. This, under the 
quick-sighted guidance of private interest, will, if 
left to itself, infallibly find its own way to the most 
profitable employment; and it is by such employ- 
ment, that the public prosperity will be most effec- 
tually promoted 

"This policy is not only recommended to the 
United States, by considerations which affect all 
nations; it is, in a manner, dictated to them by the 
imperious force of a very peculiar situation. The 
smallness of their population compared with their 
territory; the constant allurements to emigration 
from the settled to the unsettled parts of the 
[128] 



PROTECTION 



country; the facility with which the less independ- 
ent condition of an artisan can be exchanged for 
the more independent condition of a farmer: — 
these, and similar causes, conspire to produce, and 
for a length of time must continue to occasion, a 
scarcity of hands for manufacturing occupation, 
and dearness of labor generally."* 

Hamilton saw very clearly the value of Smith's 
philosophy of freedom and that, as a protest 
against too much regulation, it had every right to 
be respected. The following appreciations of it 
are taken from different drafts of his report: 

a Works, vol. 4, pp. 71, 72. Cf. Works, vol. 4, p. 104. Also 
Smith, A., Wealth of Nations, Book 3, ch. 1, and Book 4, ch. 9. 



[129] 



i 



ALEXANDER HAMILTON 



"This theory has so 
much of truth in it 
that its principles 
ought never to be out 
of the view of the 
legislators of this 
country. And while 
its extremes ought to 
be qualified in practice 
by the exceptions to 
which every general 
theory is subject, its 
maxims ought to serve 
as cautions against all 
extremes of any other 
kind. If they do not 
persuade that all legis- 
lative countenance 
ought to be withheld 
from particular 
branches of industry 
which appear to stand 
in need of it, they 
ought at least to incul- 
cate that it should be 
afforded with modera- 
tion and measure, that 
the real aptitudes in 
the state of things for 
particular improve- 
ments and ameliora- 
tions should be care- 
fully consulted, and 
that they should be 
developed by gradual, 
systematic and pro- 
gressive efforts rather 
than forced into ma- 
turity by violent and 
disproportioned exer- 
tions." a 



"There is so much 
of truth in these posi- 
tions that an attentive 
eye ought to be had to 
them in every step of 
our progress toward 
the attainment of 
manufactures. But 
though they are very 
proper considerations 
to moderate, they are 
not such as ought to 
extinguish a zeal for 
manufactures. All 
political theories, how- 
ever true in the main, 
become pernicious 
when pushed to an ex- 
treme. They all admit 
of numerous excep- 
tions and qualifica- 
tions; in discerning 
which the wisdom of 
government is mani- 
fest." b 



"This mode of rea- 
soning is founded up- 
on facts and principles 
which have certainly 
respectable preten 
sions. If it had gov- 
erned the conduct of 
nations more gener- 
ally than it has done, 
there is room to sup- 
pose that it might 
have carried them 
faster to prosperity 
and greatness than 
they have attained by 
the pursuit of maxims 
too widely opposite. 
Most general theories, 
however, admit of 
numerous exceptions, 
and there are few, if 
any, of the political 
kind, which do not 
blend a considerable 
portion of error with 
the truths they incul- 
cate." c 



^ Hamilton, MS. Manufactures, 1, L. C. 
^Hamilton, MS. Manufactures, 3, L. C. 
c Works, vol. 4, p. 73. Manufactures, 1791. 

[130] 



PROTECTION 



I 



Hamilton now advances several positive argu- 
ments against the tenets of Smith. It was neces- 
sary, in order to make his system of liberty work, 
for Smith to assume perfect mobility of labor and 
capital; but Hamilton was quick to see that this 
assumption was not warranted by the facts of 
human nature. It disregarded entirely the psy- 
chological factors in the equation; such as habit, 
the spirit of imitation, and the fear of want of 
success in untried enterprises. "Experience," he 
says, "teaches that men are often so much gov- 
erned by what they are accustomed to see and 
practice, that the simplest and most obvious im- 
provements, in the most ordinary occupations, are 
adopted with hesitation, reluctance, and by slow 
gradations."* Men will, in fact, often adhere to 
ancient courses as long as they may obtain from 
them bare subsistence. "The apprehension of 
failing in new attempts," he continues, "is, per- 
haps, a more serious impediment."^ Cautious 
capitalists are not likely to undertake new and 
precarious undertakings unless government inter- 
vene to remove some of the obstacles. 

The doctrine of Adam Smith, furthermore, dis- 
regards the existence of nations; his theory might 
have worked in a world without national bound- 
aries, national traditions, and national desires, but 

a Works, vol. 4, p. 104. Manufactures, 1791. 
^ Works, vol. 4, p. 105. Manufactures, 1791. 

[131] 



ALEXANDER HAMILTON 



these to the mind of Hamilton involved, not only- 
facts to be recognized, but also principles to be 
cherished. His chief concern was the collective 
interest of the American nation. "To maintain," 
he said, "between the recent establishments of one 
country, and the long-matured establishments of 
another country, a competition upon equal terms, 
both as to quality and price, is, in most cases, im- 
practicable."^ A society, therefore, which might 
be ready for manufactures according to the sys- 
tem of perfect liberty would be hindered, by un- 
equal competition, from diversifying its industry. 
Another impediment to the establishment of new 
industries is the policy of foreign nations of grant- 
ing bounties, premiums, and other aids "to enable 
their own workmen to undersell and supplant all 
competitors in the countries to which those com- 
modities are sent."^ Combinations of foreign 
manufacturers, Hamilton also thought, existed 
whose purpose it was to frustrate, by temporary 
sacrifices, the introduction of new industries in 
countries which were their markets."" "Whatever 
room there may be for an expectation that the 
industry of a people, under the direction of private 
interest, will, upon equal terms, find out the most 
beneficial employment for itself," he remarks in 

a Works, vol. 4, pp. 105, 106. Manufactures, 1791. 

^ Works, vol. 4, p. 106. Manufactures, 1791. 

c Works, vol. 4, pp. 106, 107. Manufactures, 1791. 

[132] 



PROTECTION 



conclusion, ''there is none for a reliance that it will 
struggle against the force of unequal terms, or 
will, of itself, surmount all the adventitious bar- 
riers to a successful competition which may have 
been erected either by the advantages naturally 
acquired from practice and previous possession of 
the ground, or by those which may have sprung 
from positive regulations and an artificial policy."^ 
Hamilton looked at the advice of Adam Smith 
to the statesman in two ways: he thought, in the 
first place, that because of the reluctance of 
human nature and national aspirations, it would 
not work; that it would not achieve the results 
promised; he thought, secondly, that, even if it 
did work, the form of society it would produce 
was undesirable because it overlooked the interests 
and power of particular nations. Hamilton was, 
in fact, not an individualist. No book has thrown 
so much light on the motives and beliefs of Hamil- 
ton as did the recent work of F. S. Oliver. This 
book, begun as an essay on Joseph Chamberlain's 
policy of preference, expanded into a political and 
economic study of Hamilton. Its most extraor- 
dinary popularity shows not only its literary 
power, but also the renewal of interest in Hamil- 
ton and the principles of nationalism. It is valu- 
able not so much for its facts as for its study of 
forces back of facts. Whatever its defects as 

* Works, vol. 4, p. 107. Manufactures, 1791. 
[133] 



I 



ALEXANDER HAMILTON 



history may be, Its position is secure as a sympa- 
thetic interpretation of a political philosophy 
which has held the allegiance of at least some of 
the most powerful of the world's thinkers and 
statesmen. 

Hamilton's argument for protection might be 
stated in brief as follows: National diversification 
of Industry increases the power and wealth of the 
nation; such measures, therefore, as will effect 
this object should be adopted and pursued. We 
may consider his arguments at more length under 
these heads: home-market; self-sufficiency; and 
productivity. 

The home-market argument for protection was 
addressed by Hamilton to the agriculturists who 
constituted by far the most numerous class in 
America. Manufactures, he says, by creating. In 
some instances, a new, and securing, in all, a more 
certain and steady demand for the surplus produce 
of the soil, contribute to an augmentation of the 
produce or revenue of a country, and have an 
Immediate and direct relation to the prosperity of 
agriculture.^ "It Is evident," he continues, "that 
the exertions of the husbandman will be steady or 
fluctuating, vigorous or feeble. In proportion to 
the steadiness or fluctuation, adequateness or in- 
adequateness, of the markets on which he must 
depend for the vent of the surplus which may be 

'^ Works, vol. 4, p. 95. Manufactures, 1791. 
[134] 



PROTECTION 



I 



produced by his labor."^ When Hamilton con- 
sidered the poHcy of self-sufficiency and exclusion 
pursued by foreign nations; the casual and occa- 
sional demand for the produce of our soil; the 
danger of a glut of produce In our markets; the 
probable progressive settlement of the West; and 
the need of developing the vast, unexplolted re- 
sources of the nation : — when he considered these, 
he was convinced that an extensive domestic 
market was necessary to our prosperity. "To 
secure such a market," he concludes, "there Is no 
other expedient than to promote manufacturing 
establishments."^ 

That every class and every sectional Interest 
within the nation was unequivocally bound up with 
the national Interest was a fundamental maxim of 
Hamilton's creed. Antagonisms within the nation 
he regarded as superficial and due to the inability 
of people to comprehend their welfare as a whole. 
"The aggregate prosperity of manufactures and 
the aggregate prosperity of agriculture," he says, 
"are intimately connected. """ Manufactures pro- 
mote a vigorous and more steady cultivation of 
the soil, and, even if they do abridge the rapid 
settlement of lands, the land-owning class is reim- 

a Works, vol. 4, p. 95. Manufactures, 1791. 
^ Works, vol. 4, p. 97. Manufactures, 1791. 
c Works, vol. 4, p. 139. Manufactures, 1791. 

[135] 



ALEXANDER HAMILTON 



bursed by an increase both In the capital value and 
the income of its land.* 

Hamilton found the most insistent opposition 
to manufactures coming from the South. Since 
that section could not develop them under the 
regime of slavery, it regarded their encourage- 
ment in the North as sectional legislation opposed 
to their interests. This opinion Hamilton de- 
plored. "Ideas of a contrariety of interests be- 
tween the Northern and Southern regions of the 
Union," he said, "are, in the main, as unfounded 
as they are mischievous. The diversity of circum- 
stances, on which such contrariety is usually pred- 
icated, authorizes a directly contrary conclusion. 
Mutual wants constitute one of the strongest links 
of political connection; and the extent of these 
bears a natural proportion to the diversity in the 
means of mutual supply."^ The Sociahst believes 
that there is a "gigantic struggle between capital- 
ism and landed property, between profits and land 
rent,'"' but from the nationalist's point of view 
these interests are complementary. Hamilton re- 
garded the cooperation of the agricultural and 
manufacturing interests as not only necessary to 
the power and opulence of the nation, but as bene- 

a Works, vol. 4, p. 103. Manufactures, 1791. 
^ Works, vol. 4, p. 139. Manufactures, 1791. 
<^Rabbeno, U., Protezionismo Americano, Essay 2, ch. 7, sec. 
63. 

[136] 



PROTECTION 



ficial to the cooperating classes and individuals. 
It was his belief that there was an "intimate con- 
nection of interest which subsists between all the 
parts of a society united under the same govern- 
ment."* 

In the comprehensiveness of his appeal Hamil- 
ton did not forget the fishing interests. "As far 
as the prosperity of the fisheries of the United 
States," he said, "is impeded by the want of an 
adequate market, there arises another special 
reason for desiring the extension of manufac- 
tures."^ 

While Hamilton desired economic independ- 
ence for the American nation, he was hopeful that 
this country by producing a great variety of goods 
would become an extensive, diversified market in 
which foreigners would supply their needs. 
"Another circumstance," he observed, "which 
gives a superiority of commercial advantages to 
states that manufacture as well as cultivate, con- 
sists in the more numerous attractions which a 
more diversified market offers to foreign cus- 
tomers, and in the greater scope which it affords 
to mercantile enterprise. """ 

Hamilton's home-market argument, then, falls 
naturally into three parts: manufactures, in the 

a Works, vol. 4, p. 140. Manufactures, 1791. 
^ Works, vol. 4, p. 138. Manufactures, 1791. 
c Works, vol. 4, p. 132. Manufactures, 1791. 

[137] 



ALEXANDER HAMILTON 



first place, by furnishing a steady and near market 
for raw materials and foodstuffs, would encourage 
both the intensive and extensive cultivation of the 
soil; they, secondly, by making the sections of the 
country mutually dependent, would cement more 
closely the Union of States; and they, thirdly, by 
diversifying the articles of national production, 
would prevent stagnation in our markets and 
attract foreigners to our shores to buy. 

In selecting the industries which he believed 
worthy of protection, Hamilton took into con- 
sideration, among other interests, "particularly 
the great one of national defence."-^ For the sake 
of national strength and independence, he desired 
that the United States should abridge its wants of 
other nations, and that because of the uncertain- 
ties of international trade and the possibilities of 
war, it should aim at self-sufficiency. "Not only 
the wealth," he says, "but the independence and 
security of a country appear to be materially con- 
nected with the prosperity of manufactures. 
Every nation, with a view to those great objects, 
ought to endeavor to possess within itself all the 
essentials of national supply. These comprise the 
means of subsistence, habitation, clothing, and 
defence."^ In Hamilton's day the safety, if not 
the existence, of a political society depended on its 

a Works, vol. 4, p. 163. Manufactures, 1791. 
^ Works, vol. 4, p. 135. Manufactures, 1791. 

[138] 



PROTECTION 



ability to obtain adequate supplies. The embar- 
rassment of the United States during the Revo- 
lutionary War, from an incapacity of supplying 
its needs, was remembered, as a warning, by Ham- 
ilton; and he urged that timely and vigorous 
measures be taken to prevent its recurrence in case 
of future war/ He thought that we ought not to 
depend on foreign supply because it was precarious 
and liable to be interrupted.^ "The want of a 
navy," he observed, "to protect our external com- 
merce as long as it shall continue, must render it a 
peculiarly precarious reliance for the supply of 
essential articles, and must serve to strengthen 
prodigiously the arguments in favor of manufac- 
tures.'"' National self-sufficiency was to him a 
policy demanded by expediency and practical poli- 
tics. In an age when nations were neither asking 
nor giving quarter; when the weak were the prey 
of the strong; when retaliation, navigation laws, 
and war were chessmen in the international game 
of national greatness; the strength, if not the 
safety, of the American nation, Hamilton main- 
tained, depended on abridging our needs of other 
powers. 

Economists have generally conceded that under 
certain conditions a nation might be justified, for 

a Works, vol. 4, p. 136. Manufactures, 1791. 

b Works, vol. 8, p. 222. Speech, 1796. 

c Works, vol. 4, p. 136. Manufactures, 1791. 

[139] 



ALEXANDER HAMILTON 



the sake of self-sufficiency, in diversifying its in- 
dustry. But they usually add that the nation 
which does it, sacrifices wealth to defence. Ham- 
ilton did not think so. Self-sufficiency was to him, 
in fact, incidental, or perhaps, self-evident; he 
believed that protection was primarily a means of 
increasing the power of the nation to produce 
wealth. The theory of "productive powers" is 
generally ascribed to Friedrich List. List was 
born at Reutlingen, Wiirtemberg, August 6, 
1789. Because of political persecution, he came 
to America in 1825, and remained five years. He 
immediately interested himself in the "Pennsyl- 
vania Society for the Promotion of Manufactures 
and the Mechanical Arts" — a society founded by 
Hamilton. This society republished in 1824, with 
a preface by its president, Matthew Carey, Ham- 
ilton's Report on Manufactures. A second edi- 
tion appeared in 1827.* In this same year List 
wrote a series of letters to C. J. Ingersoll, Vice 
President of the Philadelphia Society, which were 
published under the title, "Outlines of American 
Political Economy." 

Rabbeno has pointed out that before landing in 
America List had not formulated his theory of 
protection and also that all the essential ideas 
which appear in his work of 1841 are to be found 

a Hirst, M. E., Life of Friedrich List, p. 115. 
[140] 



PROTECTION 



in the "Outlines" of 1827."^ Although List gives 
no credit in any of his writings to Hamilton's 
famous report, it seems impossible to escape the 
conclusion that he found in it the general prin- 
ciples which he developed into his theory of nation- 
ality and productive powers.^ 

"National economy," List says, "teaches by 
what means a certain nation, in her particular 
situation, may direct and regulate the economy of 
individuals, and restrict the economy of mankind, 
either to prevent foreign restrictions and foreign 
power, or to increase the productive powers 
within herself."^ The object of political economy, 
he thought, was not to gain matter in exchanging 
matter for matter, but to gain productive and 
political power. "There are," he says, "a capital 
of nature, a capital of mind, and a capital of pro- 
ductive matter, and the productive powers of a 
nation depend not only upon the latter, but also 
and principally upon the two former.""^ 

America was in Hamilton's day a vast unde- 
veloped estate; rich in latent resources but poor 
in productive powers. The economic organiza- 
tion was weak because simple. The most direct 

* Rabbeno, U., Protezionismo Americano, Essay 3, ch. 2, sec. 
23. 

^ Callender, G. S., Economic History of the United States, p. 
552n. 

^List, F., Outlines. Letter 1. 

•^List, F., Outlines. Letter 4. 



[141] 



ALEXANDER HAMILTON 



and obvious way In which manufactures would 
Increase production in an agricultural society, 
Hamilton pointed out, were : first, by the extension 
of the use of machinery; machinery which is an 
^'artificial force brought in aid of the natural 
force of man" would increase the mass of national 
industry. In the second place, manufactures 
would afford "occasional and extra employment to 
industrious individuals and families, who are will- 
ing to devote the leisure resulting from the inter- 
missions of their ordinary pursuits to collateral 
labors";^ and give employment to persons dis- 
qualified by bias of temper or infirmity of body 
from work in agriculture. In the third place, 
manufactures would increase the quantity of labor 
in the nation by attracting foreign immigrants. 
''Men," Hamilton says, "reluctantly quit one 
course of occupation and livelihood for another, 
unless invited to it by very apparent and proximate 
advantages."^ But those, unwilling to migrate in 
order to become farmers, would come to America 
if they had prospects of continuing in their chosen 
calling. "The disturbed state of Europe," Ham- 
ilton writes in 1791, "inclining its citizens to emi- 
gration, the requisite workmen will be more easily 
acquired than at another time; and the effect of 
multiplying the opportunities of employment to 

a Works, vol. 4, p. 91. Manufactures, 1791. 
^ Works, vol. 4, p. 92. Manufactures, 1791. 

[142] 



PROTECTION 



those who emigrate, may be an increase of the 
number and extent of valuable acquisitions to the 
population, arts, and industry of the country. To 
find pleasure in the calamities of other nations 
would be criminal; but to benefit ourselves, by 
opening an asylum to those who suffer in conse- 
quence of them, is as justifiable as it is politic."^ 

In a nation, as in a factory, there is a maximum 
of productiveness. Hamilton believed that it is 
the statesman's, as it is the entrepreneur's, duty 
to regulate the division of labor so that the maxi- 
mum product will be produced. His arguments 
for national division of labor are taken sub- 
stantially from the "Wealth of Nations" — the 
difference being that, while Smith lays emphasis 
on division of labor within a manufactory, such as 
his pin factory, or on international division of 
labor, Hamilton emphasizes division of labor 
within the nation. "There is scarcely any thing 
of greater moment in the economy of a nation," 
he says, "than the proper division of labor. The 
separation of occupations causes each to be carried 
to a much greater perfection than it could possibly 
acquire if they were blended."^ Hamilton then 
gives Adam Smith's three famous arguments for 
division of labor. Greater skill and dexterity, in 
the first place, naturally results from a constant 

a Works, vol. 4, p. 143. Manufactures, 1791. 
b Works, vol. 4, pp. 87, 88. Manufactures, 1791. 

[143] 



ALEXANDER HAMILTON 



and undivided application to a single object.^ The 
cultivator, in a country which has manufactures, 
since he does not have to make his own implements 
and manufactured goods, can give his undivided 
attention to the tillage of the soil. By furnishing 
food and raw materials, on the contrary, to the 
manufacturer, the farmer allows him to perfect 
his processes and develop his skill. Division of 
labor, secondly, economizes time by avoiding the 
loss of it "incident to a frequent transition from 
one operation to another."^ Time is lost in the 
transition itself, in the orderly disposition of im- 
plements, machinery, and materials, in the "inter- 
ruption of the impulse which the mind of the work- 
man acquires from being engaged in a particular 
operation," and in the "distractions, hesitations, 
and reluctances which attend the passage from one 
kind of business to another." National division 
of labor, finally, leads to the improvement of 
machinery.^ A man employed on a single object 
will be led to exert his imagination "in devising 
methods to facilitate and abridge labor." 
Another result will be that the fabrication of 
machines will become a distinct trade and the in- 

a Works, vol. 4, p. 88. Cf. Wealth of Nations, Book 1, ch. 1, 
vol. 1, p. 9. 

b Ibid. 

f! Works, vol. 4, pp. 88, 89. Cf. Wealth of Nations, Book 1, 
ch. 1, vol. 1, pp. 10, 11. 

[144] 



PROTECTION 



vention and application of machinery will be ex- 
tended. "The mere separation of the occupation 
of the cultivator from that of the artificer," Hamil- 
ton concludes, "has the effect of augmenting the 
productive powers of labor, and with them, the 
total mass of the produce and revenue of a 
country."^ 

Adam Smith and his school seem to disregard 
entirely the immaterial and mental factors in the 
equation of production, and to maintain that the 
industry of a country is always in proportion to 
the quantity of its labor and capital.^ If it be true 
that the confidence and enterprise of the people 
does not effect production, it is, then, obvious that 
any regulation which diverts labor and capital 
from a more to a less productive industry destroys 
national wealth; if, on the contrary, the psycho- 
logical factors have a bearing on production, the 
question becomes: In what form of society are 
the largest number of human talents brought into 
play and the greatest quantity of activity stimu- 
lated? Hamilton's answer to this question was: 
In a society where the objects of industry are most 
diversified. 

"It is a just observation," Hamilton remarks, 
"that minds of the strongest and most active 
powers for their proper objects, fall below me- 

a Works, vol. 4, p. 89. 

b Cf. Wealth of Nations, Book 4, ch. 2, vol. 1, pp. 422, 423. 

[145] 



ALEXANDER HAMILTON 



diocrlty, and labor without effect, if confined to un- 
congenial pursuits."^ It was his idea that in a 
homogeneous society, such as America was in his 
day, a large amount of talent goes to waste 
because it has no object to which to apply itself. 
Since men have diversity of talents and disposi- 
tions, he desired that opportunities in industry be 
coextensive with them. "When it is considered 
....," he wrote in one of the manuscript drafts 
of his report, "that the results of human enter- 
prise and exertion are immensely augmented by 
the diversification of their objects; that there is a 
reciprocal reaction of the various species of in- 
dustry upon each other mutually beneficial, and 
conducive to general prosperity, it must appear 
probable that the interests of a community will be 
most effectually promoted by diversifying the in- 
dustrious pursuits of its members and by regulat- 
ing the political economy so that those who have 
been particularly qualified by nature for arts and 
manufactures may find the encouragement neces- 
sary to call forth and reward their peculiar 
talents."^ 

The effect of enlarging the field of enterprise 
had the same effect on the industry of a people, 
Hamilton believed, as the "discovery of some new 



^ Works, vol. 4, p. 93. Manufactures, 1791. 
^Hamilton, MS. Manufactures, 3, L, C. 

[146] 



PROTECTION 



power in mechanics";* it harnessed and made 
available powers which formerly were latent. He 
wished by encouraging manufactures to stimulate 
men with new ambitions to produce wealth. '*To 
cherish and stimulate the activity of the human 
mind," he says, "by multiplying the objects of 
enterprise, is not among the least considerable of 
the expedients by which the wealth of a nation 
may be promoted. Even things in themselves not 
positively advantageous sometimes become so, by 
their tendency to provoke exertion. Every new 
scene which is open to the busy nature of man to 
rouse and exert itself, is the addition of a new 
energy to the general stock of effort. 

"The spirit of enterprise, useful and prolific as 
it is, must necessarily be contracted or expanded, in 
proportion to the simplicity or variety of the 
occupations and productions which are to be found 
in a society. It must be less in a nation of mere 
cultivators, than in a nation of cultivators and 
merchants; less in a nation of cultivators and mer- 
chants than in a nation of cultivators, artificers, 
and merchants."^ 

Hamilton marks the dividing line between mer- 
cantilism and modern protection. The old mer- 
cantile fallacies of money and the balance of trade 
were like bubbles which need but a pin-prick to 

a Hamilton, MS. Manufactures, 2, L. C. 

^ Works, vol. 4, pp. 94, 95. Manufactures, 1791. 

[147] 



ALEXANDER HAMILTON 



burst them, but out of the ruins of the old Hamil- 
ton reconstructed the new, and thereby became the 
founder and prophet of modern protection. 
Through List his ideas have affected the policies 
of Germany, through the Careys and others they 
have been perpetuated in America, and in more 
recent times they have crept past the shades of 
Smith and Cobden into free-trade England. Ham- 
ilton's theory of protection was more than a 
political expedient; it was the economic side of his 
nationalistic creed. The encouragement of manu- 
factures, he knew, would strengthen the nation in 
the rivalries of the world and, by creating mutual 
wants, unite the sections together; but the keystone 
of his doctrine was the belief that the diversifica- 
tion of industrial pursuits would increase the na- 
tion's power to produce wealth. It Is In contribut- 
ing this theory that he has claim to a respectable 
place among the economists of the world. 

If It be admitted that It is desirable for an 
agricultural country to encourage manufactures 
the question presents Itself: How shall this be 
accomplished? Hamilton's list of means Is ex- 
haustive. It includes: protecting duties; prohibi- 
tion of rival articles; prohibition of the exporta- 
tion of the materials of manufactures; the exemp- 
tion of materials of manufactures from duty; 
drawbacks of duties which are Imposed on the 
materials of manufactures. Hamilton did not 



[148] 



PROTECTION 



recommend unqualifiedly all these means. Of 
prohibition of rival articles he said that "it is only 
fit to be employed when a manufacture has made 
such progress, and is in so many hands, as to insure 
a due competition, and an adequate supply on 
reasonable terms. "^ Of prohibition of the export 
of raw material he said that it is a regulation 
which "ought to be adopted with great circum- 
spection and only in very plain cases. "^ 

Hamilton further suggested that manufactures 
might be encouraged by improving transportation 
and banking facilities; by encouraging the dis- 
covery at home and the introduction from abroad 
of new inventions; and by the judicious regulation 
for the inspection of manufactured commodities. 
He placed special emphasis on regulation. "Con- 
tributing," he says, "to prevent frauds upon con- 
sumers at home and exporters to foreign countries, 
to improve the quality and preserve the character 
of the national manufactures, it cannot fail to aid 
the expeditious and advantageous sale of them, 
and to serve as a guard against successful compe- 
tition from other quarters. '"" 

Hamilton had a particular bias for bounties. 

^ Works, vol. 4, p. 144. Manufactures, 1791. 

^ Works, vol. 4, p. 145. Manufactures, 1791. It seems strange 
that Hamilton does not mention in this connection that under the 
Constitution neither State nor Nation can lay duties on exports. 
Art. 1, sec. 9, cl. 5; Art. 1, sec. 10, cl. 2. 

c Works, vol. 4, p. 158. Manufactures, 1791. 

[149] 



ALEXANDER HAMILTON 



*'This," he says, "has been found one of the most 
efficacious means of encouraging manufactures, 
and is, in some views, the best."* He favored 
them because their effect was direct and positive; 
because they avoided a temporary augmentation 
in price ; because they had not, Hke high protective 
duties, a tendency to produce scarcity; and because 
by them new objects in agriculture and manu- 
factures may be encouraged together. He also 
favored premiums since their effect is to stimulate 
general effort. "They are," he says, "a very 
economical means of exciting the enterprise of a 
whole community."'^ 

To those who like Sumner"" believe that In his 
philosophy of trade Hamilton never rose above 
the mercantilist's balance of trade theory it must 
suffice here to answer with one quotation. "It 
seems not always to be recollected," Hamilton 
says, "that nations who have neither mines nor 
manufactures can only obtain the manufactured 
articles of which they stand in need by an exchange 
of the products of their soils; and that if those 
who can best furnish them with such articles are 
unwilling to give a due course to this exchange, 
they must, of necessity, make every possible effort 
to manufacture for themselves; the effect of 

^ Works, vol. 4, p. 146. Manufactures, 1791. 
*» Works, vol. 4, p. 153. Manufactures, 1791. 
^Sumner, W. G., Alexander Hamilton, p. 175. 

[150] 



PROTECTION 



which is, that the manufacturing nations abridge 
the natural advantages of their situation, through 
an unwillingness to permit the agricultural 
countries to enjoy the advantages of theirs, and 
sacrifice the interests of a mutually beneficial inter- 
course to the vain project of selling everything 
and buying nothing."* The assumption of some 
free-traders that, if one industry declines, under 
competition from without, the existing capital and 
labor inevitably finds employment in other in- 
dustries, would seem to imply that the economic 
decay of a nation is not possible, — an implication 
scarcely supported by the facts of history. Ham- 
ilton, while understanding the laws which operate 
on the wealth existing in a society in a point of 
time, was more interested in the causes which 
stimulate the production of wealth and the forces 
which cause nations to rise and decline. 

It may be best from the point of view of hu- 
manity to have weak and declining nations elim- 
inated; but to the nationalist the collective 
interests of a group of people, with common life 
and civilization, is worth preserving. Hamilton 
was little concerned with how we might exchange 
our existing wealth for goods in Europe; he was 
deeply concerned, however, with how every force, 
physical and mental, within the nation might be 
turned to increasing our productiveness. "The 

a Works, vol. 4, p. 96. Manufactures, 1791. 
[151] 



ALEXANDER HAMILTON 



support of Industry," he says, "is, probably in 
every case, of more consequence towards correct- 
ing a wrong balance of trade than any practicable 
retrenchments in the expenses of families or indi- 
viduals."^ To him the course of the exchanges 
was merely a barometer of national prosperity. 
We might for a time satisfy an adverse trade 
balance by exporting our securities but, if we were 
to remain a solvent nation, these sooner or later 
had to be met by the exportation of actual wealth. 
A nation which imported more goods and services 
than it exported must sooner or later, Hamilton 
maintained, either abridge Its Imports, increase its 
exports, or diversify its Industry. And it was 
In seeking to strengthen the American nation by 
giving It a more complex life that he found justifi- 
cation for meddling with the sacred and natural 
laws of exchange. 

We will do well to remember that protection, 
as Hamilton understood it, was an expression of 
nationalism. The charge of the Socialist that 
protection is grounded on capitalism and that it is 
a device by which the capitalist exploits the 
worker,^ may be valid against some modern legis- 
lative policies which seek to justify themselves by 
Invoking the name of Hamilton. But the mis- 
application of protection cannot be laid at the door 

a Works, vol. 3, p. 407. National Bank, 1790. 

^Rabbeno, U., Protezionismo Americano, Essay 2, ch. 2, sec. 17. 

[152] 



PROTECTION 



of Hamilton. Protection which now allows capi- 
talists to use the strength of the nation to main- 
tain their system of exploitation is not even akin to 
Hamiltonian protection. To him protection was 
a means of strengthening a weak class, not for 
the benefit of that class, but for the power and 
wealth of the nation. Class interests in which the 
Socialist believes and self-interest in which the 
free-trader has such implicit faith were to him 
forces to be either encouraged or restrained as 
the interests of the whole people demanded. 



[153] 



\- 



■■^h 



-^ A 




















^\ 


»•"», 


-^c- 






T- :<P !>; 


* -f^ 


^f 


s" 


t 




■ ■<.. ^^^■ 


^v 


■p. 


K 


.,^^^ 








O 
^ 

/ y 



.^.^^-V' 
"^^ %/:^ 













^ 


.^^^^ 








' 


s 


^^^ 








\ 




,\ 






#^\^' 








.0 


^^ 

















^-p 



>p°^ 




^ ;«&: "^^^ ^; 



: -r^^-c. - 






..s^ ^ 



^ .V 



<p' 









vO c 












■^ct- '/^^^' 



■0- V 






if : ■ ' 



o ••> f 






^. s:^:.^\#- 



x..^ 



' r> 0^ ^^ ^". ^^;^ "" v> 















o'v-' 



.0 






-* .A 



^:. ' 



